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I think we have all had the calculators out over the past couple of months, trying to second guess what the financial deal split would be Gideon and equity at various share prices. Someone on this chat did rightfully make the observation that any equity raise would have the share price determined by the cornerstones and not what the prevailing share price, therefore today or tomorrow’s share price is not relevant.

Completion figure $725 million, not the $537 million. Sorry.

I’ve been going through the construction update RNSs again, to try and get a handle on what’s needed for completion. If you believe in what you’re reading in the RNSs, then the latest are not as bad as the doom merchants may imply.

The 2nd October RNS stated an increase in CAPEX of 35%. $537 million plus 35% is $725. This however is a figure stated by the previous BoD. We have no clue how the review is structured or what the terms of reference are. So if we take the 35% at face value as the true figure could be more or it could be less. Hidden costs not previously identified extra cost for the delay but also savings and deferring costs.

As of the 10th November RNS. The Araguaia Project has a current spend of $429 million. They had a total liquidity sources for Araguaia of $169 million, $131 million of senior debt and $38 million of cash. As of 15 December 2023, the Group had a cash position of US$42 million, of which US$19 million is held in secured accounts relating to Araguaia’s project. So the amount of current spending is $429 million plus $19 million = $448 million. Cash needed to complete is $537 million - $448 million = $277 million. When the funding package is approved it will release the senior debt of $131 million. Together with the $19 million cash left for Araguaia and the new loan on $20 million that makes $170 million available for Araguaia. So my calculations say that the funds required are $277 million- $170 million = $107 million.

I know that I’m being optimistic so let’s say a raise of £100 million is reasonable. If that was done by a 50:50 dept equity split it doesn’t seem too bad. As Wasa said it’s what the strike point is for the equity. This will be determined by the cornerstones so it’s not difficult to negotiate. So £50 million on an equity raise at 20p equals 250 million new shares or at £1 equals 50 million new shares.

I can dream.

Obviously the delay in the MzrE update hasn’t helped maters as all future news is relying on that.

Another reminder of company value.

Vale spent $200 million on proving Vermelho.

…yes no RNS this morning, so still in the dark, not light at the end of the tunnel.

The uncertainty continues!

I would sincerely hope so. I would also hope they would have the courtesy to inform us of their intentions as I think a lot on this chat have written off this investment.

Let’s hope that an RNS in the morning say all is wonderful and sorry we’ve worried you so much!

So an RNS in the morning. 😎

Just interested in people’s thoughts on why you think the share price is at its current level and what level it should be?

Is it because of investor sentiment or because of the market? Are these one and the same? Do you think that the share price always reflects the true value?

I know some of the characters here, that are the doom merchants, would always say it’s is, and some that it’s not the true value and the true value is actually zero.

I’m squarely in the corner of it being investor sentiment that drives the share prices and not the true value. The RNS on 2nd October caused the initial fall that day with the skittish private investors exiting with enough volume to take the SP to 50p. The next day there is a possibility that shorters got in on the action and caused the further drop to 16.4p. The share price after that RNS should not have fallen anywhere near to that level imv. Again the drop to 8p after the November updates was due to sentiment again. Some might argue that it wasn’t just PIs but an institution as well, but that was on the back of sentiment and protection of their position. Did the increased risk profile warrant the size of drop?

What this has done is just to make the negotiations to fill the funding gap that much more difficult. I don’t believe the true value of a company is ever reflected in the share price. The cornerstones will know the value. My view would have been that a fair value to have negotiated equity at would be the same as the previous equity raise at 90.5p. However I know this isn’t going to happen due to the minority of shareholders being skittish.

The RNS is undoubtedly positive and encouraging. It allows negotiations for a full funding package to take place under less duress than if interim funding had not been in place. The risk of administration has decreased until at least the end of February. I would have liked to have seen more funding in the interim, maybe $50 million. However, it does indicate to me that the cornerstones are prepared to fund this project further and with debt, and not want it going down the administration route. This also indicates to me that for the full funding package they will be looking at will have some debt elements. This may come with a heavy interest rate, but better than equity dilution in my opinion.

Merry Christmas to you Matt! There are a lot of long term holders here, including myself who are in deep here. We don’t need telling. Yes I’m extremely worried about my investment here, anything that may be of interest to other people on this chat I will post.

Https://news.sky.com/story/at-least-12-dead-and-dozens-injured-in-smelter-furnace-explosion-in-indonesia-local-media-reports-13037236

Sad loss of life. Wonder what happened?

This does have some consequences for the Nickel market.

Looks like they’ve refreshed the website wit a new design.

https://zinnwaldlithium.com/

Happy Christmas everyone 😁

Https://stocksdownunder.com/article/best-asx-resources-stocks-for-2024/

Just wish ACP was one.

That’ll be Mr Head he is talking about.

Wasa, I agree, it’s an extremely complex situation with all the parties. My extremely simplistic model doesn’t do it justice. The summary of my illustration was to show that financing wholly by debt would be the most beneficial for all the equity holders. It just a question of whether they could negotiate that. Probably not, but I’m sure they would be trying.

2% drop yesterday

The above is just an alternative view with some structured analysis. It is just my ramblings to get my head straight and not intended to be a solution that would be even considered. This would have been better presented by a table but alas this chat doesn’t allow. I’m not deluded and do understand that there are many other options even the one where equity is wiped out totally by going into administration. Still a distinct possibility, although imv diminishing.

I was thinking about the situation we’re in from the point of view of equity preservation and whether it has value.

I’ve put together some figures which are just illustrative but very loosely based on this situation. Some baseline assumptions:- NPV £1 billion, 400 million shares in issue, target share price £2.00 ((NPV x 80%)/400 million). The main equity holder has 25%. Their average being £1.00 having invested £100 million, target value £200 million, (£100 million profit, 100%). A funding raise is required of £200 million.

Raise by 100% debt. This will have an effect on NPV and hence the target share price. For argument sake let’s reduce the NPV by £50 million. Therefore, the new target share price will be £1.90 ((NPV x 80%)/400 million). The main equity holder target value £190 million, £90 million profit, 90%.

Raise by 100% equity. The key here is the number of new shares that are issued and the strike point. Let’s be extreme and consider two points, 10p and £1. Assuming that an even uptake across all equity holders.

At 10p to raise £200 million you need 2 billion new shares. Therefore, the new target share price will be £0.333 ((NPV x 80%)/2400 million). Assuming the main equity holder still has 25%, 600 million shares. Their average being £0.25 having invested £150 million, target value £200 million. £50 million profit, 33%.

At £1 to raise £200 million you need 200 million new shares. Therefore, the new target share price will be £1.333 ((NPV x 80%)/600 million). Assuming the main equity holder still has 25%, 150 million shares. Their average being £1.00 having invested £150 million, target value £200 million. £50 million profit, 33%.

The illustration shows that debt preserves the equity better. The strike point for a rise given an even uptake doesn’t have a differing effect on the equity loss.

The difference comes in where there is an unequal equity uptake.

At 10p to raise £200 million you need 2 billion new shares. Therefore, the new target share price will be £0.333 ((NPV x 80%)/2400 million). Assuming the main equity takes 1 billion of those shares so holding 1100 million shares, 45.8%. Their average being £0.18 having invested £200 million, target value £366 million. £166 million profit, 83%.

At £1 to raise £200 million you need 200 million new shares. Therefore, the new target share price will be £1.333 ((NPV x 80%)/600 million). Assuming the main equity takes 100 million of those shares so holding 200 million shares, 33.3%. Their average being £1.00 having invested £200 million, target value £266 million. £66 million profit, 33%.

The real rub is for the LTH who doesn’t want to invest more. The target share price for debt is £1.90, for 10p raise 33p and for a £1 raise £1.33.

The best option for both the main equity holder and the PIs is debt. Next best for the main equity holder is a raise at the lowest price and taking lots of shares, which is the worst for the PI.

Pub,

In this case I do agree with you.