Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Hi Rover, in any allocation where the cornerstones take 90% (they own less than 90% between them at the moment) then they end up with more % of the company with the more 'new' shares are issued. This is further exacerbated by the convertibles which also dilute, giving Orion and La Mancha more shares (especially Orion who own the $50m convertible).
FWIW I think the cornerstones will take a very large % of equity here then in terms of the negotiated price who knows what it will be. I'm hoping no more than £80-85m equity (so around $100m of the deficit) then I can live with 20p. Hoping for less and higher price.
One of the reasons I think equity WILL be used even though the current equity price is pants, is that if the whole lot ended up being debt/royalty it will become next to impossible to develop Araguaia2+ which is what for example La Mancha invested for, because the additional large debt burden will become expensive to service and A1 won't generate sufficient FCF to fund it.
So we're between a rock and a hard place really, but I do expect financing to get done and the SP to be higher afterwards. Even if there are 800m shares in issue after your calc vs 300m pre raise we had an mcap around £400m before the news broke it would give us c. 50p fair value SP after the raise. I'm prersonally resigned to only seeing £1+ after A2 comes online but my concern right now is how can they finance this and still build A2. There's plenty of risk here.
The interesting thing about Orion is that they are a much bigger shareholder (when you consider their $50m convertable where the option price reduced at the last dilution) than it appears from the holdings list. In a way, they stand to benefit more if dilution happens because their option price reduces over this large number of shares, than La Mancha, who only hold $15m convertable. Just something I always remind myself that Orion are really a bigger player here than their shareholding suggests and much closer to La Mancha's (virtual) holding.
Rover in the past it has often been the D+1 to update on the gold loan situation, maybe they're negotiating down to the wire ore maybe they just like to keep us sweating it a little longer. I guess if not today it'll be Monday a.m. RNS.
19p is still nuts IMO. 40p/50p/60p all acceptable for this stage and risk of funding being found but no way 19p. For even the short termers who appeared mysteriously on or around October 2 this is a bag opportunity (minimum) by year end from this price. Then depending on the path chosen further rerate as market absorbs it and we have clarity on exactly when the build /construction completes and we go into production.
Rover the funny thing is they aren't independent equations. When La Mancha invested they did so on the proviso that this would be a much bigger company than Araguaia1. So in effect now there is chicken and egg - how to fund the extra requirement for A1 while still keeping A2 'in play' because the cornerstones invested for the bigger picture and no they didn't want to shell out an extra $300m each time!
I also think it isn't an accident the A2 DFS has moved back on the funding required. Of course the A1 funding will impact A2 funding (in terms of capex for steel and things has increased for both) but actually how you finance A2 becomes fundamentally important in the A1 financing picture. If A1 royalties/etc. suck the company dry of profit then A2 becomes impossible to fund from FCF so I do really think with the cornerstones around the table a funding solution with much more than half an eye on A2 is being sought which is probably one of the reasons it is taking so long!
I don't think it is the right time to actually fund A2 but to have a plan for how to fund it based on how to complete A1 will be the big discussion at the moment I think. But a leftfield idea would combine for the funding for both but then as others have said it shouldn't involve too much equity as the equity price will be much higher with A1 producing nickel.
When the news broke early October of course it was stressful in terms of the SP action but just as concerning question for me became 'how do we now fund A2' because my investment case was very much for A2 producing. I guess we find out in a few weeks.....
>>So I'm betting on a recovery to former levels (at worst)
By which I mean, former levels in terms of SP being £1.50 I am betting will be achieved with either A1 producing at nameplate, or A1+A2 producing at nameplate. Not what anyone wanted we were here for more but running out of cash mid build and needing say $200m is going to hurt you somewhat which is what I am expecting to play out here.
Just in terms of averaging down, it's a great strategy if you have conviction in the a stock (as Dee clearly has here) and it is my strategy also, what the herd thinks has never particularly bothered me I've seen it as opportunity if others are pessimistic.
My own personal circumstances through this drought period were, I have no (significant) cash coming in for the past year or so now, and I already have a position which a. is the largest £ invested in my portfolio, is b. bit shy of 5% of the company or more recently perhaps actually 5% so I do rather well if the mine gets built ergo averaging down is just being greedy in a sense. But buying when everyone was selling was always where I made decent money so anyone buying at the 0.5p, 1p, 2p levels IMO is going to do very well when the mine gets built (or sold).
Stringer you asked on the ACP board what I thought about Horizonte. Though shock at the massive drop (still think they should have suspended at the first RNS) for a variety of reasons I've reasoned through and others here I see the current stakeholder too complicated (5-8 senior lenders including ECA, 3 cornerstone investors) for either a full corporate restructure, or 'no finance deal' as being likely outcomes as the amount of funding required (say, $200m though we don't know the figure precisely) is still only something like 25% of total capex spend when all in, of which much has already been spent. It is c. half of equity already raised and c. 66% of debt already raised and nobody will want to loose what they put in (Orion, La Mancha) to another party.
In terms of the financing deal itself of course it'll be really complicated (we are obviously hoping for a lot of royalty/debt in the deal and hopefully less equity especially at current levels) but I think value will be preserved for shareholders, how much remains to be seen but I could live with up to 1bn shares in issue post finance because if that gets A1+A2 built you are still looking at a £1.50sp potential.
So I'm betting on a recovery to former levels (at worst) and hopefully better outcomes are still possible. That makes the current shareprice very cheap, obviously.
O/T stringer but yes, I'll answer on the other board though!
You got people like me (28m+ shares at the moment) who will hold for mine build production
you got people who had to sell for whatever reason already sold
then you'll have a lot of people who want to get out at breakeven
Breakeven for a lot of people is well north of here. When BKT get building there will be natural gravity for ACP to rise (I'm not expecting immediate news from ACP but give it until BKT well into their mine build maybe 6 months and we might see some action).
How that churn gets handled lets call it the 3p-4p area. There will be a lot of sellers. But I won't care, because for every share sold at 3p there will be a buyer at 3p at that stage new investors. Ultimately it may limit the price at which we can do equity but for a smaller mine build it should be possible to find other sources of funding to avoid excessive dilution.
I'm pretty confident here and if Horizonte hadn't been the car crash it has ended up being here, I had intended to add to my position early in the new year with new funds - but now for me cash is king and any funds already committed will not be committed but neither will I look to sell. Quietly confident on ACP and I know a lot on this board don't share that view ;)
Ditto that - has to be done by (latest) mid December IMO. At this stage you are burning a lot of cash. I expect the reason we can continue uninterrupted at this stage is because all parties have a very high % degree of certainty that a funding solution will arise, and that therefore the current cash burn is justified (as opposed to suspending operations for now, with the additional cost of restarting them again once a solution is found). You don't continue to burn cash as you approach a precipice unless you agree the precipice isn't a precipice IMO. The funding solution will be sooner, than later and I think Nov or early Dec.
I don't know how long the gap in time between the 'figure required' RNS and the 'funding' RNS especially as the figure is likely to be approximately known now, so plenty of time to thrash out a framework agreement ahead of its publication but I would expect 2-3 weeks might do it. So countdown starts when we know the number.
We were also promised an Araguaia 2 DFS at some point in Q4 (was it mid Q4?) so that may feature in the announcements but not sure at what point.
With respect to A, however there are a few things to consider:
- at this point Orion and La Mancha lose $200-250m they have already put in. So IMHO only, they don't sell for less than this unless it is them doing the buying (which has been highlighted as a risk). They don't own 100% of the shares so there is a base value somewhere where the company doesn't get sold below because existing shareholders will not vote it through (unless of course there is no alternative because their shareholding goes to 0 otherwise).
- in terms of who could bid, lots of suggestions majors would be interested, for example Vale, or Glencore. The best case if it gets sold is of course a bidding war.
I still think a funding solution involving the existing stakeholders is the most likely outcome and between the 3 of them (La Mancha, Orion, Glencore) they hold enough shares that a third party can't force a sale at a price which doesn't suit them (they own >50% of equity here).
Mv01 you don't sound like a rookie. Your questions make sense ;)
I have no expertise in question A. I assume shareholders get all of it distributed equally among all shareholdings and from pickedpeck's calculation it would be a lot more than $100m even in a distressed sale....and hence a lot more than 16p.
It really depends what price you got your 200k for. I got my 600k for >£1/sh (on average, probably, as been adding in the last year or two a lot) so a 50p sale price is not that great for me....
In terms of why the shareholder value destruction - you are right, if $200m could be found simply via debt, in the grand scheme of things over LOM and the revenues expected, it's not a biggie. We wouldn't be talking 50% or 33% of prior valuation.
The problem is, nobody wants to lend debt right now without equity. Even the second round finance here of $80m debt would have been much more desirable than a 40% dilution, which is nevertheless what we got. So the reason we're valued at 16p right now is the market is betting/pricing massive dilution (or equity wipeout) because if it could be financed by debt the shareprice wouldn't be 16p right now. If the deficit whatever it is can be funded via other means, likely bounce to a much higher level of course.
>>Then you have 80% of NPV at GBP valuation of $1.3bn
Sorry that should read £1.3bn mcap (GBP). Damn $ key is next to £ key on my keyboard.
Hi mv01 pickedpeck did a nice summary of what a (distressed) sale value might look like he might repost it or scroll back a day or two. I'm hoping that's worst case scenario in that - distressed sale sp is still < worst possible outcome dilution here.
My projections for £4.50 were for c. 2025/2026 where:
330m shares were in issue
Agaguaia 1 and Araguaia 2 were producing nameplate $29k/t with NPV north of $2bn.
Then you have 80% of NPV at GBP valuation of $1.3bn which is around £4/sh, then obviously this is sensitive to nickel price, % of NPV valuation, and also Vermelho was the second project with upside.
SImply put, I'm hoping now worst case we end up with 1bn shares, better would be 660m shares fully diluted. This would give me £4.50/2 or £4.50/3 at the equivalent stage, and the equivalent stage has gone back 6 months or so so maybe late 2026 - one concern I do have is that whatever financing solution lands makes Araguaia 2 much longer to realise (and indeed, its own capex may have increased) in which case the £4.50 point in old money may take a lot longer to reach.
I had around £3/sh down for Araguaia 1 at full production so by the same metrics £3/2 at nameplate production or £3/3 post finance deal still gets you £1-1.50/sh but that only gets us back to where we were pre disaster RNS and the timescale on that would be by mid 2025 at nameplate production.
If it's worse than those numbers then its bad for me as my average now is probably north of £1, but obviously can still be a very good outcome for people buying 16p/20p etc.
....and I maintain, still: if the amount needed to raise was < $100m this could have been done in a very short period of time using a mechanism similar to last time (which raised $80m). So it is likely to be bigger than this number. That said, upside from 16p, definitely.
I agree with the article that 16p is cheap
I agree with the article that Horizonte will (likely) find finance (as the key stakeholders haven't sold and the banks haven't walked away)
The 'gap' (pun intended) in the article is that from commencement of production to nameplate production was expected to take up to a year. During this time, unless you know the precise trajectory of production, you have to finance your ongoing opex. Horizonte _had_ to have raised this money as you can not assume that during this period opex can be met by production/sales. So if the cost overrun is due to additional cost (and we don't know the split between additional cost, and the schedule delay, of the 35%) I find it safer to assume that you need the additional capex cost of 35% but you need to retain the original amount of funding raised for the ramp up intact.
A lot of people are ignoring the period between 1st metal and nameplate production. There is a metric shedload of cost during that period which has to be financed. The period is scheduled to take up to a year.
So - we have Theorist 30p-50p in a few years....nothing guaranteed..... and billyr 30p-50p in the next few minutes take your bets ladies and gents etc.etc. the horses have left the gates and HZM is frontrunner.
My view is something inbetween. The first news and next news isn't going to be good, it's going to be a shedload of dosh needed with perhaps hints at options to finance it, perhaps not at that stage. So I definitely don't expect 'good news imminently'.
Then we need the management team to earn their bread and having had 4-6-8 weeks from when they were already no doubt talking to the senior stakeholders as the bombshell landed, deliver us something that (fingers crossed) keeps us with existing shareholdings in the game.
I expect the latter announcements relatively shortly after the funding needed, maybe 2-3 weeks. And probably all to happen in November. It is simply unsustainable for the company to continue building the mine longer term with a large funding shortfall which isn't understood, documented, and resolved - anything else and you can't have 1000s of contractors on site working with no clarity of when or if that suddenly stops. So for my money this all gets wrapped up in November or failing that first couple of weeks in December. It's exciting, but sadly for all the wrong reasons.....unless you're a new punter at the races and like billy's odds he's offering.
Bebeto, this might be true but here we aren't talking about about firat tranche financing on a go/no go decision to build a mine. If we were, Horizonte might today struggle to raise the $630m or $700m required to get the project off the ground (the amount they already raised).
No we are talking about Orion and La Mancha saving their existing $200-250m invedtment to date, and completing a mine which might already be c. 75% built. I would say the odds of Horizonte not being able to finance the rest are minimal, however, the million dollar question remains what does that do to (our) existing equity.....