Member Info for Strangerstill

Why is everyone so surprised that there will have to further capital raised through share issues. At present Bacanora still has $180 million of agreed loan funding in place to draw down and has just received $22 million from Ganfeng giving a total of $202 million. Discounting any cash in the bank and the fact that Bacanora has been undertaking preliminary earth works, the amount still needed to be raised to complete the mine is about $250,000,000. The worst case scenario is that all this has to be raised through equity. Although Bacanora have stated that the company may only need to raise half of the additional funding needed because Ganfeng will raise the rest through its equity stake in the company and the equity stake in the project this in itself will dilute the profit attributable to Bacanora shareholders. If you take the worst case scenario of 100% equity then I estimate that the long term price per share from 2026, at $11,000 per tonne and 35,000 tonnes per year, will be between £1.50 and £2.50. I very much doubt that Bacanora will have to raise all future funding through equity and there is also the NPV of Zinwald to be added to the equation. My belief is that with 50% of future funding requirement coming from loan funding and Zinwald thrown into the mix the long term price will be in the region of £3.50 to £4.50, if you can afford to hold for the long term.

The operative part of the RNS is ‘Meanwhile, the Board has been informed that Mr Zhevago has not been served with any legal notice’, this is probably true as Mr Zhevago will not, personally, have had a legal notice served on him by the Ukrainian prosecutor as he is not currently in the Ukraine. I suspect that legal notices have, however, been served on his legal representatives in the Ukraine. I have read a report that the Ukrainian authorities are in process of drawing up an international arrest warrant for Mr Zhevago. I would be very happy if the final result is that Mr Zhevago’s influence in Ferrexpo is diminished but I suspect that there will be more damage done to the share price in the short term.

Custeel.com gave the following prices for their Seaborne Iron Ore Price Index:

65% Fe fines $100.5
65% pellet premium $17.05

Zhevago has lost a lot of political influence in the Ukraine recently and has enemies. I suspect that the move by the State Investigation Bureau may indicate that his position has become more vulnerable. I also think that the top managers and officials already arrested may have given information to the SIB regarding Zhevago, one defence is I was made to do it by my boss and also they may have been offered a deal to incriminate Zhevago

This from PG news
The former Verkhovna Rada deputy and the main owner of the Ferrexpo company, which trades in commodities and iron ore, Konstantin Zhevago, was summoned for questioning by the State Bureau of Investigation. He will be notified of the suspicion and questioned as a suspect. This was reported in the press service of the Prosecutor General.
Zhevago should arrive for questioning on September 27 at 11:00.
Context
• In August, the State Investigation Bureau accused two top managers and officials of the liquidated Finance and Credit Bank of embezzlement of UAH 2.5 billion. The financial institution belonged to Konstantin Zhevago. The GDB also said that the ex-people's deputy could be involved in this scheme.
• The investigation established that from 2007 to 2014, an offshore company opened credit lines in foreign banks. In this regard, the latter and the Bank of Zhevago entered into agreements for more than $ 113 million. "Finance and Credit" vouched for the offshore company with their money in correspondent accounts with these foreign banks. As a result, the offshore company did not pay its debt, and foreign banks wrote off $ 113 million from the Ukrainian financial institution. They did this after Finance and Credit went bankrupt.
• And according to the Deposit Guarantee Fund of individuals before the bankruptcy of Zhevago Bank, 5 billion UAH was withdrawn from it.

The important issue here is what would the impact on Ferrexpo be if the Chief Executive and majority shareholder is found guilty in relationship to the fraudulent activities at the ‘Finances and Credit’ bank.

I am invested in Sirius (but nowhere near as much as BCN) and it is a gamble but if it pays off it will give a very good return. The mineral transport system is not 45 miles long but 37 km long (approx 23 miles) and is being bored by three machines each boring approx 12 km each. The project is currently ahead of schedule and the contractors digging the shafts and transport tunnel are experienced in tunnelling. The loan that has to be raised is at the least risky end of high risk bonds and as long as Sirius raise the bond then it should complete the mine with few problems unless an absolutely unforeseen geological problem occurs which is unlikely as the geology of the area is well known.

More on government support. The government could use the same method as used to give the £500 million guarantee to JLR as Sirius will export most of its produce.

The Government will guarantee loans of £500m to Jaguar Land Rover after Britain’s biggest car maker said it would develop and produce new electric vehicles in the UK.
The guarantee to JLR is being provided by UK Export Finance, the state-backed credit agency, under a new “general export facility” intended to boost exports.

There are reasons why the government might be tempted to guarantee the loan.
Sirius is exactly the type of business that will be needed after Brexit as it will export most of its produce and its income will be in dollars as the fertiliser market is international. Sirius will be very good for the balance of payments not to mention the tax that the government will receive.
The conservatives are worried about the Brexit party damaging their share of the vote in any upcoming election and the NE of England has a high percentage leave vote and a high percentage of voters voting for the Brexit party.
Sirius currently employs about 2,000 people and will directly employ 1,000 people after completion of the mine with a further 2,000 to 2,500 jobs through the employment multiplier effect. The loss of these jobs in the NE would have a very negative impact on the perception of the government if it does nothing to help Sirius.

Effectively we have a different government now, Boris has found the magic money tree at the bottom of his garden. Who is to say that the government wouldn't give a loan guarantee which would mean that Sirius could raise the money on a lower coupon. Good publicity for Boris in the run up to the GE and what has the government got to lose, if Sirius fails they just print £500 million.

We will not be in the EU after 31 October

The last paragraph should read

The fundamentals for Ferrexpo have not really changed but the share price will remain depressed much below its true value until the situation re Blooming Land is fully investigated and the current issues are resolved.

The impact on Ferrexpo’s earnings should be minimal as the issue is around the $110 million given to Blooming Land and whether Blooming Land or other charities that ultimately received the money committed fraud and/or tax evasion. I suppose that Ferrexpo might have some tax liability or could be fined if it can be proved that Ferrexpo knew or should have known about any fraud committed. Ferrexpo may have a good defence in the fact that the situation re Blooming Land has been brought into the open by its own review based on its own concerns. The problem for Ferrexpo is that it might be deemed to have not acted fast enough which seems to be the auditor’s concerns.

From Reuters
‘Funding for Blooming Land’s CSR activities is provided solely by one of the company’s units in Ukraine and Khimreaktiv LLC, an entity ultimately controlled by Ukrainian mogul and Ferrexpo’s Chief Executive Officer and owner Kostyantin Zhevago. In August, the company said during the first-half of 2018 its board came to know about certain contributions in 2017 by Khimreaktiv into one of the sub-funds of the charity. Later in 2017, those contributions were repaid by the sub-fund to Khimreaktiv using Ferrexpo’s contributions to the charity, the company had said, adding that these transactions were declared only after the company made enquiries.
The company on Monday reiterated Blooming Land and its sub-funds are separately managed and not controlled by the group.’

The real issue seems to be that Zhevago may have used his position within Ferrexpo and his controlling interest through the 50.3% holding in Ferrexpo by Khimreaktiv LLC (which he owns) to commit fraud and/or evade tax. I suspect that Zhevago did not want the internal review to take place and opposed and delayed it through his position on the Board. Zhivago only has one vote on the Board so could not ultimately stop the internal review going ahead however he is probably pretty pissed at the review which may uncover evidence to indicate that he has committed fraud and/or tax evasion using Khimreaktiv LLC. As the auditors and the NEDs (both of whom were on the review panel) were up for reappointment at the AGM it might be that they had indications that the reappointment would be opposed by Zhivago in which case get your resignation in first. I suspect what we are seeing is a fight between the Board who want to do the right thing and run Ferrexpo as a good company and Zhivago who is out for himself. The problem for Zhivago is that if he persists then he ruins his own fortune, on Friday the value of his holdings (through Khimreaktiv LLC) fell in value by around £225 million. It might be that in the end Zhivago cuts his holdings in Ferrexpo and/or steps back from the management of the company. If he is found guilty of fraud or tax evasion the he would be barred from being a director in the future in any case.

The fundamentals for Ferrexpo have not really changed but the share price will remain depressed much be

Thanks L2analyst good extra information. Let's hope this proves a good move by BCN.

Further to my post below VSA has been appointed as research provider. https://vsacapital.com/bacanora-lithium-plc-appoints-vsa-as-research-provider/

They certainly didn't. Something is happening on the funding front. See VSA's website https://vsacapital.com/natural-resources/

What assets does Ferrexpo have in Russia? I am not aware of any.

Russia may have imposed sanctions on the Ukraine which affected the export of food produce from the Ukraine to Russia. The impact on Ferrexpo sales is minimal as Ferrexpo does not export iron ore to Russia.

Sales segmental reporting from the Ferrexpo web site:

Central Europe: some of the steel plants in this region were initially designed to use Ferrexpo pellets. We have well-established logistics routes and infrastructure to service these steel mills by both river barge and rail. Our products represent an attractive alternative to Brazilian and Canadian suppliers due to the closer proximity for a continuous small-parcel delivery chain. Key customers are based in Austria, Czech Republic, and Slovakia.

Western Europe: the proximity of our mining operations to steel mills in this region provide logistics cost advantage compared to more distant producers. Key customers are based in Germany.

Turkey, Middle East and India: we are one of the closest pellets suppliers to steel mills in this region offering significant future growth potential.

North East Asia: we are focused on building relationships with the premium steel producers in Japan and South Korea. We can ship efficiently to customers via capesize vessels enabling our costs to remain competitive on a landed cost basis.

China and Taiwan: we are focused on building relationships with the premium steel producers in this region.

The annual report does not mention Russia in the segmental sales reporting.

The sanctions may have had an impact on energy costs for Ukrainian businesses such as Ferrexpo thus reducing their profitability somewhat although the main cost driver for Ferrexpo is inflation and higher repair and mining costs.

DC2007 stated re Ferrexpo; ‘Longer term, the case for the company is bearish given their income is expected to decline’. I disagree with this.

Ferrexpo’s recent reduction in output is due to the fact that it is taking one of its four production lines out of production for a quarter each year in order to carry out long term maintenance and improvement. This together with a concentrator expansion programme will be completed by 2021 by which time production should be 12 million tonnes of ore per annum; this is a 7% increase over its 11.2 million tonnes produced in 2016.

As of 1 January 2018, Ferrexpo had estimated proved and probable reserves of 1.4 billion tonnes classified according to the JORC Code. These reserves are included in it’s estimated resources of approximately 6.6 billion tonnes classified according to the JORC Code (of which 3.6 billion tonnes are in the Indicated category resources and approximately 2.1 billion tonnes are in the Inferred category). In addition, as of 1 January 2018, it had estimated resources of 13.1 billion tonnes under the FSU Classification. Ferrexpo’s ore is high grade magnetite which is ideally suited to pellet production which commands a sizeable premium over 62% fines. Platts reported a 65% pellet premium of 73$ per tonne over 62% fines. The pellet premium is increasing as steel producers are coming under increasing pressure to reduce the pollution from the steel making process. This will help to maintain revenue and profitability.

Ferrexpo’s debt is reducing and it has a strong cash flow which will enable it to invest in its plant.

Over the next three years Ferrexpo’s production should grow from the 10.4 million tonnes reported in 2017 to 12 million tonnes. In the long run Ferrexpo plans to increase production to 20 million tonnes of high quality iron ore product.

As a company Ferrexpo’s future looks good with a capability of significant expansion. Of course the real fly in the ointment is the political environment in the Ukraine which currently increases the risk of investing in Ferrexpo.

From the Takeover Panel

http://www.thetakeoverpanel.org.uk/the-code/download-code

‘When a person or group acquires interests in shares carrying 30% or more of the voting rights of a company, they must make a cash offer to all other shareholders at the highest price paid in the 12 months before the offer was announced (30% of the voting rights of a company is treated by the Code as the level at which effective control is obtained).
When interests in shares carrying 10% or more of the voting rights of a class have been acquired by an offeror (i.e. a bidder) in the offer period and the previous 12 months, the offer must include a cash alternative for all shareholders of that class at the highest price paid by the offeror in that period. Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be made available at that price at least.’

Bacanora’s highest share price of 157p occurred on Jan 8 2018 so if a takeover was to occur before the end of this year the price offered would have to be a lest 157p. An offer in the period up to the end of June 2019 would have to be made at 89.5p which was the price on 5 July 2018. After that unless a takeover was agreed with the institutional investors any third party trying to build a substantive stake in the company would surely push the price up and they would have to pay the highest price paid in the previous 12 months by the offeror. If an offeror agreed to buy shares off the institutional investors then the private investors would have to be offered the highest price paid by the institutional shareholder.

This effectively means that it will be impossible for a shareholder to acquire more than 30% of Bacanora’s shares or a takeover to be made without the existing shareholders being protected in terms of the price that they would receive for at least the next 8 months by which time future should be a lot clearer.

'Bacanora Lithium plc (AIM: BCN), the London listed lithium exploration and development company, announces that the Company's audited final results for the 12 months ended 30 June 2018 will be released later this month and will include a full update to shareholders on progress at its Sonora lithium project in Mexico.'

Well let's hope that it is a truthful full update and that there has been substantial progress.