For what it's worth...24 Dec 2018 07:32
FWIW, I've been thinking carefully about the Bergen deal over the weekend, and here are my conclusions:
1. I don't like the deal. If it is a true short-term bridge loan, it's a ridiculously expensive way to raise short-term finance. If the loan is converted into shares, then it is also a very expensive way of placing. It's impossible to make an accurate calculation, but if both tranches were converted, I reckon we could see about 20% to 30% total dilution, just to raise $3m. That's pretty poor for a company that even at the current depressed share price has a $25m mcap.
2. I also don't like the fact that Brian Moritz and Andrew Prelea have so casually broken a promise they made to Vast's shareholders NOT to raise money in this way. That's also very poor.
3. It will almost certainly be in all existing shareholders' strong self-interest to vote down the proposed extra headroom at the proposed EGM at the end of January.
4. HOWEVER, all that said, IMO the Bergen loan isn't a true "death spiral" and won't collapse the share price as suggested in the Share Prophets piece. Nothing good will come from a constant trickle of shares being sold into the market over the next year, of course. But, and it's a big but, Vast's market cap will continue to be supported by the considerable value of its near-term assets. Pickstone Peerless is a producing expanding profitable gold mine; Eureka should generate up to $10m a year in free cash flow for Vast when it comes online; and Baita Plai should also be a cash cow when it starts operations. I just can't see Vast's mcap falling much further in the short term, and in the medium term Vast's mcap will only increase as Eureka and Baita Plai approach production. All in all, I think the Bergen convertible loan has already been priced into Vast's share price by the drop from 0.6p to 0.35p today - the market (and, sadly, not me) called this right over the last few weeks.
5. Some important considerations:
a. All this assumes that T2 Mercuria money continues to be delayed. If it arrives, then the overall picture improves tremendously.
b. I'm also assuming (in this worst case analysis) that there are no significant developments as regards the Marange diamonds. Diamonds' progress would boost the upside hugely.
c. But, there is downside risk here, as well. Vast simply must get Baita Plai into production as soon as possible. If they fail to do that, this company will turn into an unholy mess.
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