So... What will happen?3 Oct 2023 13:04
A lot of moving parts here, and a lot of people badly burnt, me included. Also seems like a lot of new faces on here not bothering with actual facts. But saying this is going to zero RMM style is very unlikely to be the case. There is a permitted mine mostly built and 4m tons of low cost Ni in the ground.
So what will happen?
As we stand today cash and assets far outweigh senior debt. Most of the cost of the mine build this far was funded by equity, they have not drawn down all the debt yet.
The fall to the current mkt cap is heavily discounting the now impaired asset value, but net of debt the cash and asset value attributable to shareholders is now much larger than the mkt cap.
The biggest equity holder and backer of the project so far is La Mancha, inherently with the most to lose. They have a lot of skin in the game and are very unlikely to allow the company to go for peanuts against their initial investment case. Their investment is equity based. That means they either put additional money in, or they sell their stake alongside everyone else's equity to a new bidder.
Rumours of Orion having no money are a bit irrelevant. Businesses like Orion are not investing their own money, they operate on behalf of large investors, either very wealthy individuals or institutions. They could assign HZM to a new fund to raise some cash, but vs La Mancha and Glencore I think they may be a sideshow. They do have a significant royalty in play though.
Glencore with equity and off take in play also have an interest in seeing this complete. There will be tension with La Mancha regarding equity value.
The money they will need to raise will likely be in the region of $250m, let's say near triple the current mkt cap. That means exisiting equity holders could 3nd up 75% diluted, pretty much where we are now vs the recent highs in terms of share price. The obvious elephant in the room is that in order to raise that from existing holders they would have to make a mandatory offer for the whole company as their % would exceed the threshold by a mile.
The otter option is a sale of Vermelho. Once the DFS is complete it could be sold as a development asset, the potential value could potentially exceed the capex requiredz or at least contribute strongly to it.
So... Given current mkt cap any equity based funding to cover the capex and opex gap is going to result in an offer for the whole company, whether from existing holders or new ones, or a sale of Vermelho. La Mancha and Glencore will not want their stakes to go for 30p a share though, so unless one of them bids I can see them opposing an outside offer.
Cynically this would explain the appointment of Barclays a short while ago. There is a complex equity raise or split required, where existing stakeholders have a tension and the only way for new ones to enter is piece meal.
Complicated, but this isn't the end of the line as some doom mongers have been touting.
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