Member Info for strab

I suggested splitting the $600m into tranches of $100m. The first tranche could be sold to the bond markets for a ~13% coupon, plus come with warrants for 15 shares per dollar.

The second tranche could be held in eskrow and only released if Sirius Minerals met certain targets regarding development of the MTS and shaft sinks. That would come with the same yield, but only 12 shares per dollar in warrants.

The third tranche, released next after another round of development targets were met, would offer 10 shares per dollar and a slightly smaller coupon (maybe 12.5%).

This would continue, tranche after tranche, for example -
Fourth tranche, 8 shares per dollar. 12.5% yield.
Fifth tranche, 6 shares per dollar. 12% yield.
Sixth tranche, 2 shares per dollar. 12% yield.

Comes to ~5.1billion new shares I think.

If at any time the development hit a road bump and was delayed or went over budget, the remaining tranches would be cancelled and returned to investors, then potentially renegotiated on more favourable terms for the investors.

In other words, the rewards would be gradually tapered off tranche by tranche as the site was strategically “derisked”.

If that failed then sure, sell the whole thing to a prospective strategic partner for a fraction of its true value.

My point is not to say “look at this perfect solution”. I know there are flaws with it. My point is that there must be options other than simply selling the whole thing straight off the bat, at a tremendous loss to the majority of shareholders. No wonder there’s such incredulity on this board.

Anyway. Guess I’m just whinging at this stage. For what it’s worth, I’m hanging onto my shares for the time being. The fact that they haven’t held a call for investors yet makes me think there might just be more to come. That’s pure speculation though and in no way a recommendation for others to do the same.

Good luck everyone!

https://edition.cnn.com/2020/01/07/investing/warren-buffett-berkshire-hathaway-acquisitions/

Love your gloomy logic, the board would be less interesting without you.

Got a question for you. What do you think of my plan? ->

Split the $600m into tranches of $100m. The first tranche comes with warrants for 15 shares per dollar.

Once the RNS goes out announcing the new plan, the share price should rebound a bit, and the new investors could well be in profit essentially right from the start.

The second tranche is to be held in eskrow and only released if Sirius Minerals meets certain targets regarding development of the MTS and shaft sinks. That comes with the same yield but only 12 shares per dollar.

Third tranche, released next after another round of development targets are met. 10 shares per dollar and slowly smaller yield.

Fourth tranche, 8 shares per dollar. Lower yield.
Fifth tranche, 6 shares per dollar.
Sixth tranche, 2 shares per dollar.

Comes to 5.1billion new shares by my back of envelope calculations.

Yes IBAB

https://www.eventbrite.co.uk/e/sirius-minerals-north-yorkshire-polyhalite-project-tickets-77805076077

As far as I’m aware, many investors and investment funds often choose to hold short positions as a hedge to offset some of the risk from their long positions.

May sound obvious, but bear with me...

If Corbyn becomes our next PM, via some agreement with the SNP or otherwise, the UK stock market will undoubtedly fall off a cliff. The reaction will be hard and fast when investors face the prospect of a Government that is so openly hostile to the concepts of profit and big business.
 
So how might a hedge fund position themselves to at least partially protect their portfolio from such a scenario? With short positions on businesses that are most acutely vulnerable to that scenario. Short positions on businesses with the furthest to fall, that offer the biggest potential returns. Enter Sirius Minerals…
 
I had dinner with a friend who works in Private Equity a few days ago and he mentioned the number of deals that are on hold until after the election. Investors will not go near the UK until the risk of Corbyn in No10 has passed. If he does get elected they’ll most likely avoid the UK for the foreseeable future until the full implications for the UK economy are better understood.
 
This is likely to be disastrous for Sirius Minerals. The “Initial Scope” finance plan could become impossible, which would probably mean administration for the business. This would obviously result in huge losses for all of us, but would be wildly profitable for the shorters.
 
The profits from those short positions may not make up for the losses on all their long positions, but it would be better than nothing. It may mean that their performance is at least still better than the market average.
 
So I’d suggest an RNS is unlikely before the election. There’s no way an investor(s) will be persuaded to commit to anything two weeks before an election like this.

But, if the Conservatives win a majority, don’t be surprised if the short positions begin to reduce quite soon after, before the SXX price has moved too much.

Everything beyond that point becomes a lot more uncertain for Sirius Minerals. The city may still be skeptical about the Initial Scope, but no one can know for sure what’s being agreed behind closed doors.

A short position from that point onwards would look a lot more like a very high stakes bet, and a lot less like a strategic hedge to protect their overall portfolio.

Obviously just my opinion.

Do we think this will have any material impact on whether/when the Initial Scope gets funded?

For example, are the bond markets likely to want to wait to see who wins before they commit to any funding package? (If Corbyn wins they'll presumably want to start moving capital out of the UK quicker than sh$t off a shovel...)

The election would obviously also have an impact on Brexit and therefore the terms of our future trade, which may affect income forecasts etc.

Not attempting to ramp/deramp, just questioning whether we're likely to hear anything *conclusive* before the election. Even if a funding package gets agreed, if it's conditional on the outcome of the election they may postpone the announcement until after it's taken place.

Just posing the question. Interested to hear people's view. Cheers

skier1 please could you explain why you think a trillion shares of value 0.1p is more likely than a $600m bond offering with ~13% yield plus (maybe) 2 shares per dollar in warrants as a sweetener?

Where’s this “trillion shares” stuff coming from? Is there any company in the world with a trillion shares???

Not sure what to make of this situation. The markets will be all over the place without some confirmation either way.

https://m.youtube.com/watch?v=zBxvjTGKMIg

I know it’s a few weeks old now, but it’s certainly recalibrated my expectations and made them a bit more realistic.

I must admit I was almost expecting an RNS last Friday, but I feel a bit daft now looking back. It’s absurd to think CF could manage to package up a nice new source of financing and present it to us so soon.

Even if negotiations with potential strategic investors are going really well, they’re very likely to want to wait until after the election just to see what the political and economic landscape looks like before they finalise anything.

So be prepared for no news until mid to late December is what I’d suggest. It may well be why the shorters haven’t cashed out yet, they’ll know there’s another month of gradual price decline ahead before they even need to review at their position.

Just speculation of course, but it’s my view.

Does anyone use the technical analysis from this website? -

https://www.britishbulls.com/m/SignalPage.aspx?lang=en&Ticker=SXX.L

Their view on Sirius Minerals seems to be “stay short, but not for much longer”.

Not sure if recommendations like this are worth anything at all really, especially with such a unique case as Sirius. Would be interested to know what others think of the website in general though.

They have another one for companies listed on US stock exchanges - americanbulls.com

Chris Fraser almost certainly IS communicating with shareholders, but only the biggest ones at this stage (i.e. institutional investors). He'll make sure they are kept abreast of progress and that they understand and support whatever is ultimately proposed, as they own the vast majority of the business. They also have the skills, resources and contacts to help him achieve the best possible outcome for the company and stakeholders.

For all the noise retail investors make, we only represent a modest proportion of the total equity distribution. We also seem to be doing everything we can to undermine him and his efforts to resolve the situation.

We'll be communicated to once the situation has progressed to a stage where there is something concrete to communicate. I'm not sure banging the drum and demanding updates all the time is particularly helpful during a period of negotiations, so I'm happy waiting a little longer and leaving the BoD to focus on finding a solution.

In fact, seems like something the Chinese government would be well positioned to do.

The loan liabilities would be minuscule compared to their annual budget. It wouldn’t actually cost them anything as they’d only be guaranteeing the $500m, not providing it, and they’d get that much back almost immediately in equity anyway as the share price jumped back up. They could either gradually divest their holding over time or just sit on the shares as a speculative investment. Either way, we’d be basically giving them something for free, in return for them guaranteeing some debt of approximately equal value.

Would this not work?

Would it make any different if Gina Rinehart (or the Qataris or whoever else) was offered a stake in the business just in return for *guaranteeing* the first $500m of bonds? Rather than actually providing the money themselves?

Or is that a stupid question? Was that the plan anyway? High finance at that level is a bit of a black box to me :/

Yuri.F - sorry I’m on the train home and I’ve had a few beers - but are you saying that, by your calculations, a 95% dilution would still mean a ~66% gain on the current share price?

I’m not disagreeing with you, just confirming I understand what your saying

I know it’s a bit of a loaded question and basically impossible to answer, but how generous of an offer could realistically be made to a new strategic partner, that meant the share price still went up upon announcement?

If (for example) they announced that an 80% share was being handed over to a new strategic partner for $500m, how would the market react relative to the current SP?

I suspect that any potential investor will have looked into this themselves and worked out how much they can shoot for, give or take maybe a 10% margin.

Does anyone have any ideas?

They still have a week before the deadline they set themselves, and regardless of whether the review/negotiations are going well or going badly, I struggle to see why they’d announce earlier than necessary.

They’re far more likely to need more time than less time.

Brace yourselves for the worst, I think the worst case RNS we should expect is one next Friday that says “we need more time”.

Someone has probably already said this but would the Saudis not be a good prospect as a strategic partner?

They certainly have the money, and it would be easier and faster to negotiate with a single entity than some rapidly assembled joint venture with all sorts of conflicting demands.

The mine is a big and unique enough project to get their attention, and it’s in tune with their vision to invest in opportunities “for the future”, that will prepare them for a world without oil.

It would also foster some much needed goodwill between their government and ours.

Has this idea already been discussed and slammed?

Something I do expect them to announce in the RNS is a raft of changes to the project to make it as cost effective as possible, probably pushing back the completion date.

I think one of the reasons the markets didn't like the previous financial package because they didn't think it was enough to complete the project. If SM had gone over budget before completion and were forced to go back for more and more money to get the mine finished, the economics of the project would obviously deteriorate.

I'm very confident that they'll find a strategic partner, it's a fantastic project. But IMO there will almost certainly be a significant shift towards a slower, less exciting and more cost efficient development to minimise the financial risk, plus (realistically) a fairly substantial dilution to bring some more capital on-board.

My finger in the air prediction is for the share price to settle at around 10-15p after a positive announcement (likely following a brief spike). The size of the dilution they announce will probably prevent it from holding at a much higher value. Then as the development continues, assuming it goes according to plan, we'll see a steady recovery over the next few years to the lofty heights of 40 or even 50p.

Just IMHO obviously. Of course no-one can know for sure, but it's fun to have a guess :) ....

Thanks FS, interesting feedback.

I'm not sure I was too clear about the underlying point I was trying to make though (sorry I think I might have overcomplicated it and got in a muddle). My question was essentially - what to do when the amount you need to raise is so far in excess of your current valuation, but where you are also trying to avoid diluting your existing shareholders down to an absolute pittance?

I can only really think of three options. With fear of stating the obvious, the first is of course simply to hand over a sizeable portion of the business to a new strategic partner, possibly offering it to them as preferred stock as a sweetener. If the new investor is reasonable, and the agreement is generous but fair and respectful to the contribution already made by LTH, this wouldn't necessarily have to be as utterly devastating as some people are suggesting.

The second would be to offer the new strategic partner a disproportionate share of future profits for a fixed time period, in addition to a (smaller) portion of the business.

The third would be as I mentioned in my previous post. In very simple terms we would say, "you pay us the money we need now, and if the share price rises to a certain pre-agreed value, we'll swap some of the debt for 10% of the business (at a heavily discounted price). Then, if the share price continues to rise to a second (even higher) pre-agreed value, we'll swap some more of the debt for a further 10% on the same discounted terms." This could continue through multiple stages as the company grows, pegging dilution with growth, and if for whatever reason the company's value flatlined (maybe demand for Poly4 is weaker than anticipated, or we hit a road bump with the drilling and have to load up on additional debt to complete the mine) then the investor wouldn't swap any more debt for equity, and SXX would simply be liable to pay back the remainder over time. And of course, if the company collapsed, they would be first in line to recover any residual value (if there is any).

I'm sure there are many more sophisticated alternatives but I can't think of any. To be clear though, I'm only talking about the next raise for ~$500m to get the mine shafts completed.

I just think that if we can map out what all the potential options might be and actually put them in writing, then we might be able to assess them individually and slowly gain a bit more clarity on what we might expect over the next few weeks and months.

Just wondering which of the above you think is more likely? If any?