Ryan Mee, CEO of Fulcrum Metals, reviews FY23 and progress on the Gold Tailings Hub in Canada. Watch the video here.
My general sense of the situation is that having the Court involved gives us the best chance for a reasonable outcome. Few people are ballsy enough to do something illegal while under the scrutiny of a judge.
Restriction on disposition of business assets
36 (1) A debtor company in respect of which an order has been made under this Act may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale or disposition even if shareholder approval was not obtained.
Marginal note:Notice to creditors
(2) A company that applies to the court for an authorization is to give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.
Marginal note:Factors to be considered
(3) In deciding whether to grant the authorization, the court is to consider, among other things,
(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
(b) whether the monitor approved the process leading to the proposed sale or disposition;
(c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
(d) the extent to which the creditors were consulted;
(e) the effects of the proposed sale or disposition on the creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.
Marginal note:Additional factors — related persons
(4) If the proposed sale or disposition is to a person who is related to the company, the court may, after considering the factors referred to in subsection (3), grant the authorization only if it is satisfied that
(a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the company; and
(b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.
Marginal note:Related persons
(5) For the purpose of subsection (4), a person who is related to the company includes
(a) a director or officer of the company;
(b) a person who has or has had, directly or indirectly, control in fact of the company; and
(c) a person who is related to a person described in paragraph (a) or (b).
https://laws-lois.justice.gc.ca/eng/acts/c-36/page-1.html#docCont
@StrummerJones
When I researched what happens next - if the only option for the Administrators to pay off the creditors is through a sale - is that a sale would be achieved by public auction.
I quote from the 2021 accounts;
The Group delivered adjusted EBITDA of £161m, alongside
a loss before tax of £(186)m. The loss was principally driven
by adjusted items, which include the excess costs for
transportation, delivery and fulfilment costs in relation to
Covid-19,
Those adjustments are BS. The costs were/are a reality and should be included. When THG stop deluding themselves, and actually embrace reality, then trust might be reestablished. Trust would sure help the share price. Let's hope they do a better job in the 2022 accounts.
I think the issue is that the "old"business is seen to be on a contracting path (notwithstanding the temporary fillip of the PGi Connect deal), and the company was incurring losses in 2022. If the company can show the speed of contraction has reduced, and/or it is back to profitability, then the market cap of £7m is way too low.
There are seven strong statements about lack of working capital. They have made it clear they cannot function properly without it. On top of that they are still in default on the Newgen loan. Management have full control over some things, but getting more capital is not one of them. Therefore unless they can persuade someone to put in more funding, the mine cannot function properly. (= difficult decisions will have to be made )
Whatever other things they are doing well, as you have highlighted, I find it hard to agree that this is a "very positive" RNS.
"Support of suppliers has continued through the period"
I read "support" as meaning they still cannot pay their suppliers, even with the positive move in copper price.
i imagine very soon they will announce another forward sell, this time nearer $3.50. The forward sells eventually will guarantee everyone can get paid (eventually), then the pressure is released.
Presumably we have pre-emption rights
Could be helpful, or a requirement, to have a more predictable income, as part of the negotiatioins with creditors. They've already reduced costs for the same reason.
It sreems to me that TB used the high copper price previoulsy to spend heavily in proving the mine's resources. This was successful and the overall value of the mine was increased to potential invetors. He wasnt terribly good at controlling downside risks however. This has got the business into cashflow problems, whihc is the classic way that otherwise good businesses end up failing. He realised his mistake, and persuaded an experienced finance professional to come on board, even to take the plunge to relocate to the end of the earth! She is now committed to sorting it out and TB is allowing the bean counters to call the shots. To be fair, I dont think this scenario is all that unusual. Fingers crossed the potential investors and/or Newgen are convinced.
· The Loan Note will be secured by first ranking security over all assets of the Company and its material subsidiaries;
Default will mean Newgen can go to Court to obtain right to sell the assets required to pay what's due. I imagine it takes a few weeks to get Court permission.
The Court will probably take into account the risks to workers (jobs/ health and safety etc), and maybe stop Newgen just going in and grabbing random equipment. Maybe the Court will order the Company to find a buyer for the business intact and report to the Court by a certain date with progress.
But I am guessing
I cannot understand how things have got so bad so quickly. If I remember they said in the last quearter they were cashflow positive. Break-even was copper price at $2.70 or some such. This is a little odd
They could do a rights offer. RMM debt free is a very decent bet. So raising £20m from existing shareholders would be not impossible to imagine.
The assumption has to be that Newgen will not renegotiate the terms. This is a company that is barely making ends meet and interest rates are heading north. It is not an attractive exposure for Newgen.
However the long term fundamentals are good . A larger outfit could probably turn this into a nice earner. Assuming Newgen says it wants its money, the obvious thing is to find a buyer. Miners have had a good year and new opportunities in "safe" jurisdictions must be on their shopping lists. You would think it should sell for $50m minimum, whihc is still a lot more than the current market cap.
I think the BoD will resist this after all the effort that has been expended into proving this mine and getting it so close sustainability. So it's not their first option, but it is still a fairly likely outcome in the current circumstances. But you never know!
I'm not saying you are wrong, but how do you get to your >40p valuation.
@jones
IF they can solve cashflow over the next 6 months, then long term this is a very valuable asset indeed. Far more than 29p+. Nearer £1+.
It's all down to whether they can get out of the hole they've dug for themselves
MM wouldnt ever let his baby die. He could let it croak and buy the assets I suppose, but then he risks getting into a bidding war with a vulture. More likely he will finally wake up to what he has to do (make a profit) and maybe then the company will actually prosper.
Mainly they need to hang on to cash, stop buying revenue, grow organically and reduce costs.
I'm not sure any of that is in MM's bones, so we need the finance team to dictate the next couple of years.