What are the real risks10 Oct 2023 09:38
Lots of talk about what could happen, so trying to be objective about the risks here may be helpful.
The company have stated they need (approximately) an additional 35% against the original capex. The original capex was $539m, 35% is $189m. Crucially they will now not start production until Q3 2024, 9 months later than expected. This will mean 9 months of operational expense and potentially debt repayments which were expected to be funded by revenue. We don't have a figure for that, or know if it is included in the 35% funding gap.
Glencore (18%), La Mancha (23%), and Orion Mine Finance (10%) are the cornerstone investors. Helikon, absent of a TR1, own 9%. Only Fidelity of the previous major holders (with 4%) have visibly sold so far. That means the current massive price drop has been driven by the other 40% of holders, a combination or smaller institutional holders and retail investors. Allowing for 50% of those to have done nothing, then about 20% of the stock was dumped on the market and churned. That aligns with last week's volumes. By inference 80% of current holders are invested at 100p plus.
Risks and realities:
Risk: Glencore or another major holder buy this on the cheap screwing over all holders.
Reality: The majority of share holders would have to accept the offer, it's hard to see why they would. No one of the major holders own enough to force a deal on their own.
Risk: The banks won't extend their loans and will force the company under, foreclosing on the mine.
Reality: The banks are a consortium with no one bank dominant. 5 banks and 2 ECAs would find it very hard to do anything meaningful with the mine. The idea they could conspire to take the mine from existing holders and sell it to Glencore is too far fetched. Could you imagine La Mancha, Orion, or even Helikon just letting that happen? They are just as pregnant with this as the rest of us.
Risk: The current share price means any equity based raise annihilates PIs.
Reality: The share nominal value of 20p puts a base to the price equity can be sold for. An open book raise at 20p would wipe out the value of the Glencore, La Mancha, Orion, and Helikon previous investments, a larger value than the funding gap. La Mancha can only buy an additional 7%, Glen 12% before Rule 9 of the takeover code means they have to make a bid for the company. None of the existing holders can allow a new entrant to dominate a new equity raise. In combination unless the share price rises sharply this severely limits the opportunity for equity raise.
Risk: The big three combine to take this private.
Reality: if they wanted it private they could have done that at the original funding stage. Future funding for additional projects is much simpler for a public company, as is sale of holdings. Not impossible but unlikely.
Risk: Low ball offer from a third party
Reality: existing share holders would have to vote to accept it, why would they?
Risk: Limted funding options
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