One way of thinking about12 Sep 2017 17:47
the bond conversion in the absence of a possibility of early redemption due to bank covenants (if that is the case) is to consider all bonds as effectively converted once the sp rises above 8.26p with the dilution that this implies, offset by the improved debt equity ratio. Assuming (arbitrarily) a 50/50 split between dilution and the debt equity improvement, the share price would have to 11.5% higher to justify a post dilution price of 8.26p i.e. 9.21p. This would be an increase of 31.5% on the current share price.
Is this unreasonable? Profit is $24.5m for H1. Under the very conservative assumptions that profit is the same in H2 (likely to be higher because of rising price of gold) that provides $49m or 1.1c (o.86p) per share using the full dilution of 4304m shares ( I used a conversion of 1bn shares, but it may be slightly higher than that).
This figure will rise in the future because EBITDA is $114m in H1. Interest payments will decline sharply by 2021/2 and capital expenditure will reduce after next year when POX is complete. Gold output is projected to rise and gold prices are already higher than in H1. A doubling of net profits to $100m pa is quite conservative on this basis - it could easily be higher. Net debt would be down to $470m because of conversion and this level of net profit could pay that down to manageable levels in a few years. Dividends could start in 2021 In my view any price under 10p is already looking cheap.
Think of the bonds as already converted into shares, because I think they will be, and then calculate were we are from that position. I anticipate an EBITDA over $250m for the full year and then I think the market may start to take notice.
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