The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Also very obvious what 'the market' thinks which is 0, company wiped out or 0, existing equity wiped out. The market can be right, it can be wrong. If it is wrong in the context of misunderstanding what the cornerstones can, and will do, and what the ex-CEO of La Mancha can, and will do in raising finance, then -> it underestimated the deal that was struck and the equity will find a new price based on that deal. We don't know. And $600m is a large number. Could clearly go either way.
By the way my contrarian view is one of a number of possibilities. I don't know if it's more likely than no funding and all bust, or funding but PIs wiped out. I don't know, and thankfully there is no decision for me to make on the basis I don't know, because:
- my 1m or so shares are not worth very much at the moment
- I don't have a further £1m to commit
So we wait and hope I guess :)
>>A company in a highly stressed scenario raising at a 900% premium - sure of course.
But the current price is arbitrary? Example - I buy £1m of HZM shares in the next 3 weeks. Sound far fetched? True, it is, I don't have £1m but I've bought that many before. atmo that gets me sthg like 15% of the company. There are _plenty_ of institutions out there with a spare £1m and they just need a whiff of a deal. What will the shareprice be if:
- 15% of the company gets bought in next 3 weeks
- the shorts close, because a deal is coming
Just wondering if there is a precedent for that?
The current sp is arbitrary - it has been lower, and higher, in the last few weeks. Cornerstones could put in interim funding of $100m USD in 2 weeks time, what will the SP be then I wonder?
(see what I did there?)
Company survives. Cornerstones do equity higher than market expects. Why? Because:
1. doing it higher means the company maintains liquidity because pre-existing shareholdings count towards liquidity
2. doing it higher means less new funding to find because proportionately less $ needs to be new investors for the same reason as above
3. doing it higher maintains their pre-existing investment
How much - what number? I think at a push it could be 1bn-1.25bn shares (4:1 or 5:1 dilution) at 20p. This would raise in the ballpark of $250m-$300m from equity, and if Glen chip in with some prepay / offtake / royalty type deal as well could bridge the gap to debt keeping total debt sub $500m and making the mine viable.
If equity is done at 1p I'll eat 50% of my shares (physically), as they'll be worthless anyway.
GLA - sun is shining (metaphorically speaking), my 1.9p buys are in the money, and once the raise is done at 20p pub barman will tell us he bought a gazillion at the same price.
Well the capex cost (from DFS) was 2.5x. As long as the opex cost from DFS isn't also 2.5x, we're profitable :-)
I'm joking of course but it has bound to have gone up. The electricity price was fixed nice and low though.
>>La Mancha/Orion/Glencore could finance this themselves but it doesn't suit them to do so, and ironically, that makes financing it harder.
Also IMHO the reason we have a financier in charge who has pulled in $50bn in deals. If he can't do it, it isn't getting done. If only the three parties needed to agree it with the banks, I think that's would have been more straightforward.
The challenge the cornerstones have got, which is what I think makes it complicated to get this deal done: even if the three of them could finance it (+ some debt from banks) because they want to maintain liquidity, keep it listed, and have it traded open market, they MUST attract further investment and can't carve up the $600m required between them. My reading of the Appian deal was that other investors didn't want to come in when Glen+La Mancha were taking the major share because they would always be in a minority shareholding in a company run by two majors.
The reason that's challenging here is irrespective of the terms on which La Mancha, Glen, Orion are _prepared_ to fund their slice of the capex requirement, they have to convince a.n.other partie(s) that this will remain a liquid company not entirely under their control where the further cornerstone(s) will have liquidity to buy/sell open market. To do that they have to offer terms attractive enough to the new investors because the new investors aren't in the 'we're going to lose $250m if this deal doesn't get done' scenario.
And therein lies the challenge. I think La Mancha/Orion/Glencore could finance this themselves but it doesn't suit them to do so, and ironically, that makes financing it harder. All IMHO.
Because this (should?) be a profitable mine? As I understand it the new caledonia mine never was. Unless the opex estimates here were wildly out and the debt balloons through refinancing making this un-financeable, but the due diligence should discover that if so.
If this mine can't be profitable, then agreed. But that's what being bottom quartile on cost is supposed to give you - security against low commodity prices.
Well, I wish they had made the offer back in 2020 (or earlier) to buy the company pre prod at even a modest +% to prevailing SP when the company was £50-100m mcap. You would like to think they could have made a better job of the build and, given that that is typically what happens to juniors with Tier 1 assets (they get bought out for their assets, by a major) we'd all have grumbled a bit then looked for another AIM casino share to squander the gains on.
But, the BOD here wouldn't have got their 'get the finance deal done bonus' and couldn't monumentally screw it up so we ended with 0. It's only the risk that La Mancha or Orion end up with 0, as you say, that still gives any hope to the company because they'll be working hard to try and make that not happen. I don't know anymore but I'm with BuddhaBob on the timescales - April interim finance is crucial, because it makes a deal relatively likely IMO, and then hopefully a deal in Q2. If no April interim finance then the large lady sings I expect.
The other thing about the lowball bid is Orion and La Mancha have to agree it. They're unlikely to agree to a 99% loss of their shares (i.e. the current price) UNLESS the possibility of a finance package and getting the mine up and running are effectively 0 because they can't do it. Then it may be that Glencore step in make the offer at a number they think Orion/La Mancha would accept.
The point is then Glencore or the buyer has to assume: $200m debt already drawn down + $600m to complete the project + $m they had to pay to La Mancha Orion and existing shareholders. Not saying it can't be done but it can only be done if Orion and La Mancha agree, and they will only agree I think if they can't raise the money themselves via the financing package.
If Glencore was already going to offer them all their money back (i.e. $250m) for a full T/O they would have done it already, I expect. So Orion / La Mancha (and other shareholders in at the £1 level) stand to lose if a bid comes, probably. (They probably stand to lose also if it gets financed - no doubt about that).
Also it's $600m USD. The same amount as the original capex (give or take) which took 2years+ to negotiate and from a less distressed angle.
62,297,182 shares
cost them $96.1m USD
worth £1.25m GBP at2p
reckless gamblers, clearly - like the rest of us.
>>Agreed. But instead of funding. Would it not be cheaper to buy the 130 million outstanding shares. Then go it alone. They have more than enough to carry that out ??
How can you do it 'instead of funding'. If you don't fund the mine it is worth 0 so it won't produce nickel. If you buy the remaining shares (which costs you money) you then have to find $600m instead of 51% of $600m?
And as has been debated ad infinitum La Mancha fund invests in public companies. Taking it private will be last resort. Glencore on the other hand might want it private so if they are going to bid for it that might be in the next month. I'll sell them my shares but only for £1+. GLA
Yes I imagine they are actively involved. However, because it's in their best interests to see maximum return of their money, they gain little by 1 month either side is my point. They have to give the deal the best chance of being landed because it's in their interests. They care a hell of a lot more about the $300m capital than a month interest this way or that.
If the lenders 'wanted' the mine, then first opportunity they had to force payment they would have taken. They don't, so the didn't.
Sorry just to qualify - it is significant that the banks didn't call the debt, of course it is hugely significant because it could have broken the company. What I meant is, I don't think it guarantees or near guarantees a deal. Whereas I think interim funding will. GLA
In and of itself I don't think this is that significant because - the banks want a deal of course they do they see more of their money back if they do. So they'll give it another month.
I do, however, see any interim funding announcement as hugely significant. I just don't think the cornerstones will put in more now they know the full cost unless there is a very very good chance of a deal and as they are at the negotiating table they will know how that conversation is going. I think that will make or break the company (in the current form) and if it happens I now expect it in April - I forget from the last RNS when we run out of money but feels like the right timeframe anyway since the last cash raise. GLA
I take it as a good sign trading wasn't suspended on tsx today - there seems to be a small volume there. If it's kaputt I can't see why you wouldn't suspend on tsx at the bell and suspend on the bell tomorrow 8am on AIM.
Given the last announcement landed at 2pm on tsx open when lse was open, perhaps the 'lights still on' RNS lands at 2pm tomorrow. I don't get this dual listing scenario with such fundamental existential newsflow I can't see how it can be well managed across the exchanges.
Just on the bonds - if the convo with the banks is 'what portion of the debt will you write off so this can be refinanced' then in return the banks will be saying 'what portion of your convertable loan notes are you willing to forego' to La Mancha/Orion. It'll be an interesting conversation for sure.
Given equity holders have already taken a 99%+ haircut I would say we've kind of paid our price already, it's the big boys turn :)
>>Bonds conversion was at 8 or 9p, which after consolidation makes new rate at 180p long time ago I had calculated
And so they were, a long time ago, and before the additional fund raise. Now they are actually at £1.268 to be precise (I got the 108p wrong):
https://www.lse.co.uk/rns/HZM/final-results-for-the-year-ended-31-december-2022-oju3hikmpsbe4ig.html
"At any time until the Maturity Date, the Noteholder may, at its option, convert the notes, partially or wholly, into a number of ordinary shares up to the total amount outstanding under the Convertible Note divided by the Conversion Price. The Conversion Price is 125% of the Subscription Price of 0.07 pence (after share consolidation 1.40 pence converted to US$ at a rate of 1.3493). The Conversion Price is therefore US$1.89. After the equity fundraise that was completed on 8 November 2022 (refer to note 14) the conversion price was revised to £1.268 /US$1.71."
La mancha and Orion bonds are a lot lower after the last dilution I forget the exact number and don't have time to look it up (108p so 5.4p in old money rings a bell) they got diluted too. Furthermore their bonds dilute more if they dilute more and this favours Orion who as a % of their holding have more bonds. So Orion are sweating this a lot less than La Mancha who hold more shares.
To take it private 75% have to vote for it. I wouldn't vote for it - if they can destroy the shareholder value to 1% then grab the spoils I'd rather it went to admin and nobody gets anything. They only have 51% of the vote atmo. I'd hope a few other PIs would also stick their fingers up to the 2p offer. Go down with the ship etc.
New PE investment is a very distinct possibility. Do you think Karim Nasr has contacts in the Private Equity world? Do you think he has connections perhaps in the middle east - exactly the theme being discussed here? If not how has he brokered $50bn in deals?
Or it could be curtains tomorrow. We'll see. I genuinely don't know and what I think or say doesn't matter because the market is closed and the negs are behind closed doors.