Orion16 Feb 2021 08:00
I've been reading the 2019 annual report again and this caught my eye (it concerns the Orion deal).
"Accounting for and valuation of the royalty funding agreement
...The royalty agreement
includes a buyback option enabling Horizonte to reduce the royalty rate and other cash payment options (the call,
make whole and put options) for part reduction in the royalty rate, which require the occurrence of certain events....
The call, make whole and put options can only be exercised if two specific events occur, being:
> A change of control and;
> Commencement of major construction work after 31 March 2021.
Management assessed the probability of both of these events arising to be remote and have determined the
valuation of these options at the inception of the loan and at the year end to be not material."
What is interesting is that of the two conditions (which have both to be met) one is now guaranteed to take place - namely, that major construction work will commence after 31 March 2021. I also expect the chance that there is a change of control to be far from remote so it could end up that both conditions are met.
I don't fully understand what it means but it does suggest that the buyback option is affected at least in part by the slippage to production. Presumably it still allows the buyback but under different terms.
Again interesting that in 2019 management saw the chance of not construction at March 2021 as remote.
On a separate note I am going to email Anna Legge from Horizonte to enquire about outstanding options as this interests me. I don't think there is solid info out there on what options are outstanding but Horizonte should have this data. If possible I will ask for option price and expiry.
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