The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
CB is appointed as a non executive director on the BMR board, whereas the JV agreemnet allowed for an Executive position both on BMR and its EPL subsidiary. Someone is staying (or being kept) at arms length. Kabwe Operations Board has a BMR majority, so at this stage, to achieve anything on the ground, JLP have to remain a friendly partner and that means staying within BMR's comfort zone, strategic, financial or otherwise. There is very little information on the project itself. However, it is clear that a major (first) stage of treating the dump material is a leaching process for primary extraction of the Zinc(?). So the 5tph plant was never intended to treat the entire 6.4million tonnes of raw material, and until Leon publishes his master plan it is hard to guesstimate how much scaling of the original BMR plans is required, some bb members claim to have mining experience, perhaps they could shed some light on the processes and their volume reduction. I surmise that Leon is well advanced with he initial leaching plans and prepared for a quick start. Since the JV has yet to be signed off I would be surprised if any of the 5tph Plant project had left the drawing board. The question (or possibly debate with ZamGov) is what the licence conditions mean by plant (would leach pits and facilities count), and production (again are they accepting leachate)? Plant construction might well have been"well advanced" in Borelli's mind, but the available information suggests that prior to JLP's arrival, only the ground works and plant base had been constructed. In itself not immaterial, if it can be used in the revised plan and all the additional circuits Leon will be designing. The share swap deal allowed for disposal of 25% of the holdings within the first 6 months and 50% within the first year. So why the need for 'special' permission unless BMR were going to significantly exceed that? (Orderly management of the share disposal granted.) I agree with some earlier posters that there is a significant element of showcasing what JLP can do for Zambia. The importance to JLP is diversification away from our dependence on SA projects where the current civil and politcal risks to business are all too real. BMR, as an entity, is clearly toxic at present due to suspension, access to zero revenues, and 'approved creditors' yet to be released from the skeleton cupboard. JLP are doing well to steer clear of historic BMR liabilities. However, if Bmr can only recover operating costs until all JLP loans are repaid with interest, then it is difficult to see how they can keep the lights on over the next 18 months. The SP has already dropped by more than JLP's total commitment to the project. Therefore one has to look wider across all of JLP's assets to account for the current (low) price. But that is another discussion. GLA.
From BMR RNS 23/10/17: BMR has undertaken to terminate the financing arrangements with African Compass International Limited ("ACI") by 28 February 2018. It is significant that this has now happened, albeit somewhat late. Dear ACI Thanks, but No thanks. Love Alex PS Can we have our money back? (Six months salaried work for AB to craft that...) Some perspective: JLP's investment in BMR to date is �300k plus the cost of the shareholding. As a percentage of JLP's business we are not as massively over exposed on this deal as current sentiment (chat or SP) would have you believe. The additional �2m heading to Kwabe is well secured (via EPL),at a high interest rate(30%) and first revenues repayment. However, realistically, building out Kwabe and bringing the project to positive cash flow will take longer and probably cost more than planned. Not because of budgetary control (Hernic build was well managed) but because I do not think the current plans are to scale with the resource and as the project unfolds they will naturally want to expand capacity and not repeat the mistakes at DCM. The issue with this is that JLP have access to project funds to do this, BMR do not have any obvious access to their pro rata liabilities without further dilution (which also dilutes JLP's holding), and will be reluctant to lose additional project share by allowing JLP to fund their portion, so are likely to be an impediment. Hence my comment that the ACI termination is significant. Not convinced by the Non Executive appointment of CB to BMR board, firstly he is already spread thin by his other directorships and secondly, for 29% shareholding, I would have thought we should have someone on their board who can command action and kick butt AND commit time. Similarly the make up of the Kwabe operations board leave JLP exposed to BMR prevarication and inaction. Finally, by demanding 100% of first profits to repay JLP's loan, BMR are left with zero cash flow (at project level) with which to keep the lights on (depending on how opex costs are attributed). Fine (but risky) if the intention is to squeeze them, but if interests are aligned then keeping them alive with a small crumb might be more prudent, because it is going to take longer than they think to get to the 60/40 distribution. Focus on DCM and Hernic are still currently more important to JLP's health. How many times have they talked of bringing third party material to DCM when it transpires they do not have the facility to do so, and how far is Hernic from the oft touted 2,400 ounces pcm after 14 months of operation? These, in combination with persistent share dilution events, are what weigh the current shareprice down. DYOR and GLA as usual.
Buying out the remaining shares is the cheaper side of taking over DQE. (Using simple numbers) Taking out the Bondholder would be in the region of £40 million ($50m + 25%). On the basis of the Bondholdings convertible option (albeit at 5 years out) the breakeven share price works out at about 50p, though I'd have thought the investor would be expecting a rather better performance/return than that. So, what would be an acceptable offer? 9p would be derisory, I would be expecting between 20p and 50p (£5m to £12m). Is Dqe worth this? I think so, simply on future licensing revenue streams on existing IP. Is it normal to request places on the Board if your intention is to take a 100% shareholding? Uncertain as to what the 'concert' parties intentions are just yet. Any thoughts?
Once again a very reasoned response, thank you. You are right I am demanding more information than I am entitled to. What I am suggesting is that more confidence can be taken in a share where the motivation/strategy of the major investors is better understood and more transparent. So (I think), OL Master have more in DQE than a simple financial investment or they would not have negotiated the 54% equity conversion or the restructure and delisting from aim, (those details advantage OL Master in some way). (My feeling is that delisting from aim could be a move to private hands rather than Nasdaq.) Similarly I think CCS have more vested in DQE than a straight punt in the market - if so I can think of a number of scenarios whereby a low share price when delisting would be of great advantage. My frustration is that DQE seems only to be valued in the market according to its current financial performance, which recently has not been that great, and that the IP portfolio and future revenue potential are both very heavily discounted. In truth I am looking to exit this investment but I would prefer it to be in the open market rather than at the execution of some dasdardly scheme. The AGM would be a good opportunity to shed some light here, but I can not attend.
Thank you, your conversation with Allenby is very useful. But why do you think CCS they have no previous (interest rather than shareholding) in DQE? I think the information that CCS are a Hyderabad outfit is a most unlikely coincidence. Either they are totally unconnected or they are not: if 'not', then I would really like to know what that connection is. I am not a fan of this level of mystery behind the scenes. The lack of disclosure of who the $50m Investor in DQE Mauritius is and who CCS are, and why they have taken such a sudden hefty stake, rings more alarm bells than it bolsters confidence at this juncture. The ethical rules of business in India are somewhat different to those we expect in the UK.
Whoever Corporate Computer Services(CCS) are, it is quite a punt given the conditions placed on the company relating to the $50m loan, i.e. it carries some risk, unless they are either affiliated with the company or the Investor who made the loan. If DQE own Mauritius 100% and Mauritius own DQE India 75% and India own DQE Ireland 100%, what is the angle of the Investor who lent $50m and requires Mauritius to swallow its parent company and list on the NASDaq and what is the angle on CCS paying (say) £1.2m for 29% shareholding when, should the company default, all the assets effectively become the property of the Investor. So I am very confused unles someone has an inside line. But, if all works out well and the company honours the loan and the rearrangement of the company, the Investor can convert into 54% ownership having paid $50m, this implies the remaining 46% is worth at least the same, turning CCS' 29% at a cost of £1.2m into 14% of the new company structure worth approx £9m. Buy out target then is 50p and we start to see the true value of the portfolio rather than the current market cap.
Pablo2. Holdings in a nominee account ISA are not so simple when the provider does not trade on non uk platforms. Shares are scare to buy, if you look at the major shareholders, then there are only 12m shares outside of those holdings and at these prices I guess a chunk of those 12m will have been consigned to the bottom drawer. Have you found out any more about the mystery 'Corporate Computer Services' - I cannot help but be suspicious that DQE is being positioned for a very cheap buy out. Why has Chakravarti only got 81,000 shares? He is a 'player' which suggests to me his interests are hidden. The company structure is horrribly complicated, and I am suspicious of that too. It is a shame, because I think the portfolio of copyright and IP has both value and potential. But with a market cap at 2.5m, just what does a DQE shareholder own - not very much of anything as far as I can see, insomuchas that market cap does not reflect any one part of the business let alone it's aggregate value. If / when it moves to Nasdaq, I think you are right the price will rebound but I think the shareholding will by then be in very select hands.