Member Info for wwguk

Questions: casa or any one who is facing the similar situation:

I noticed that the money I prepared for the basic entitlement has been taken; while the money for the excess part is still in my account. I am not sure if this will be taken at a later date or would be taken only when they know how many shares I would get on that part.

Given my application for the excess shares have been confirmed in the message from the broker, is it okay for me to use this money to buy back my shares (as it dropped quite a low and not very far from 15p, and as I know better now that it is very unlikely I will get the excess shares I asked for) ? Or should I write to them to withdraw the application first (deadline for this may already passed?)?

GK, thanks, "approximately" maybe a good enough explanation for any raising (placement or open offer) over the target(s).

casa, thanks for the further explanation. My logic maybe too naive.
I thought that the planned placing was $400m, then raised $425m, i.e., over the planned target.
Now, the target for the open offer was 218m shares ($32.7m), about 4.5% of the existing holding (4.797b).
As the placing target, this open offer target may also be surpassed, by granting more excess applications.

The initial 4.5% or 1 in 22 plan was made under the consideration that many PI may not be able to afford a higher percentage. Indeed, without the sovereign wealth fund purchasing on the open market and the buy rating from Berenberg, the share price might have dropped below 15p (as it was very near to 15p just before that) and the open offer may fail on the PI side (although as you planned, it would not fail as II will take the whole in case PI left any).

If the basic entitlements are fully taken and PI's excess applications would get nowhere or very a low number of (symbolic number of) shares, how would they explain why they grant ST, the CFO, excess shares of 18.44% of his current holding? Can this be explained as his option or rewards rather than those from the same excess facility many PIs and IIs may has also applied for?

casa, surprised to know that in additional to the $425m, placees had conditionally placed another $208m (I should have read the full circulars and prospectus. I did glance them, but not read the whole carefully).
As the initial placement plan was to raise $400m, the $25m is already the additional. The $25m extra plus the conditional $208m have shown a strong interest and demand to the SM shares by the big IIs.
In August 2018, CF mentioned that investment interests from institutions are increasing and more IIs would be interested when there is less than three years from production. Such high II interest in this placement confirms this.

You had mentioned that it may not be a good approach to sell the shares in hands to raise funds to try to get the more shares in the excess part of the open offer, as the chance to get them is very low.
I believe what you said, but still tried this way in order to get less than 18% of my holding from the excess facility when the SP sparked and when I saw TS (the CFO) got 209,094 shares (18.44% of his current holding) from the Excess Application Facility. If TS can get excess new shares (of 18% of holding) at 15p, to be fair other shareholders should also be able to get similar percentage of excess new shares. The directors are very likely to decide to raise more funds in open offer (over the planned 218m shares) (see prospectus: "Directors may determine, in their absolute discretion, and no assurance can be given that any applications under the Excess Application Facility by Qualifying Shareholders will be met in full or in part or at all").

I have a strong feeling that SM wants to raise more funds from placing and open offer than to raise them from debt, especially the extremely costly high yield bonds. Although this may introduce slightly more dilution as this moment, but may reduce the danger of much more dilution later in case more convertible bonds have to be issued to sustain the RCF facility.

Thanks, Myo and poortimin; no delay and more info than :)

Scotman, So the GM has been moved from the 21 May 2019 (as mentioned in the Circular) to the 13th of June?
and the new shares in open offer will be settled by then?

In addition to your own basic Entitlements (i.e., 1/22 of your holding), you may apply for more (but less than the max possible excesses as listed in each of your account). How many additional shares may you possibly get?

Most SM Director or member of Senior Management have committed to take 1/22 of their holding (other than CF who would not take any). Another exception is TS (the CFO). His has a holding of 1,133,713 shares. His basic entitlement is 51532 (i.e., 1,133,713/22 = 51532). If he take only the basic entitlement, after the open offer he should hold 1,185,245 shares. However, according the Prospectus, after open offer he would hold 1,394,336. This shows that in addition to his entitlement of 51532 shares (1/22 or 4.55%), he will get 209,094 shares (18.44%) from the Excess Application Facility. These excess shares come from those gave up of some shareholders (such as CF) within the planned 4.797/22 = 0.22b open offer. I.e., you may get nothing, or up to around 18% of your holding in your excess application.

CF would give up 5,624,880 shares he could buy at 15p (i.e., 1/22 of his holding 123,747,368 ). On average, every 1m holding can get 1172 from him. This 1172 might be the smallest excess every one who want more may get.

This 0.22b shares in the open offer can be exceeded if the directors may decide to do so (See Prospectus: "If more than 0.22b shares are applied (under both Entitlements and Excess Application Facility), the Directors may determine, in their absolute discretion, and no assurance can be given that any applications under the Excess Application Facility by Qualifying Shareholders will be met in full or in part or at all").

This gives a good chance for those, like Milo, who sold parts of their holdings before/after the announcement, and may use the money from the sell to buy back their shares at 15p using the excess application facility :)

AIUI and OR, the entitlements in dealing or ISA accounts have to be taken with Clear Fund. For those whose ISA subscription has been fully used and cannot add any more money, they can either sell some shares worth the Cost of Entitlement (i.e., the number of allocated shares x 15p) or request your broker to allow you to take all your entitlements in your dealing account. One important thing to notice is that the money from the shares sold normally would not immediately become Clear Fund (although they may appear in your account for you to buy shares). It would normally take two (working) days to clear, so you should do this well in advance.

I agree with casa and myo that stage 2 objective now becomes much more likely be achieved after the Fair level Alternative solution. The following is a more detailed analysis expanded on Myo baseline analysis.

--- pre stage 1 --------
$0.2b planning/drilling (raised in multiple placements)

--- stage 1 ------------
- $1.15b stage 1 (excluding the Gina $50m), risked SP: 0.2x87.5p = 17.5p by 4/2019

--- stage 2 first phases, from $1.35b funds, 4.797b shares (cost 28c/21p by 6/2019)
- $0.425b stage 2 firm placement (add 2.18b new shares)
- $0.4b stage 2 convertible bonds (plus 0.244m for old CB, to add 3.3b new shares
- $0.033b stage 2 open offer (add 0.22b new shares), SP: 0.4x87.5p = 35p in a year
- $0.5b high yield bonds (Initial tranch 9/2019, B grade)
- $0.05b Gina money 9/2019 (add 0.2b new shares) -- $2.758b grade C and B funds
- $0.5b (5/2020, first tranch from RCF at normal rate, A grade)
- $0.5b (5/2021, second tranch from RCF at higher rate, A grade)

--- stage 2 refinancing phases, from $3.75b, 10.697b shares (cost 35c/27p)
--- 12/2021, first polyhalite achieved, SP re-rate: 0.6 x 87.5p (NPV) = 52.5p
--- with $1.5b left in RCF conditional on further high bonds tranches
--- or other fundraising methods
- $1.5b from refinancing in multiple tranches (from 5/2022)
--- 10mtpa mine completed, SP re-rate with 0.6 ratio on the NPV at the time (12/2024)

After the first poly or construction de-risking and the initial earnings from poly4, better terms of refinancing (i.e., those better than the Initial high yield bonds and the second tranche from RCF) are likely to be achieved to complete the 10mtpa mine by 2024.

Note: in the above analysis is based the following,
* 1 pound = $1.3;
* NPV per share = 87.5p (5/2019 Berenberg);
* New CB (included those replacing the old CB) is all converted into new shares at 15p or 0.195c;
* $500m Initial high yield bond tranche raised before the end of 9/2019;
* $0.05m from Gina and the inter-credit issue with Gina resolved (stage 2 confirmed);
* First polyhilate by 12/2021 achieved (construction largely de-risked);
* Re financing starts after the first two $500m tranches from RCF

casa: "...That suggests that SXX have agreed a low coupon at the cost of a very fat profit for the CB's if/when the SP rises...."

The new deal comes with a $3b senior debt as higher cost as expected, a larger additional money as expected, but a much high dilution (i.e., with much more new shares due to the low prices) not as expected.

Why placement price and conversion price so low?

It seems that new convertible bonds come with a lower interest rate, much lower conversion price, and an earlier conversion date than the convertible bonds issued in stage 1.

casa, does this mean the company wants all the convertible bonds converted asap, such that they do not have to pay the interest. Given the placement and conversion price set much lower than expected, it seems that they want to have a thicker equity cushion and at the same time a higher proportion of II shareholders as these may help the company to sell the Initial secured senior bonds, and become a well-known bond issuer for its subsequent fundraising through such bonds (backed up by the JMP $2.5b overdraft facility)?

Half of existing CB holders have not refinanced, why is this? It seems that they do not want to be brought back be at this time and do not want to refinance into the new ones. Is the older one is still better than the new one in some aspects (higher interest)? The company mentioned $644 raising in convertible bonds, including $400m in new convertible bonds, and $244 to refinance the remaining stage 1 convertible bonds. I still do not quite understand how the refinance works, casa, can you explain?

Comments from analysts:

Shore Capital analyst Yuen Low believes today's news is short-term pain before long-term gain for investors.
‘The next few weeks represent the crucial juncture for the company’, says Low. He says that securing the necessary funding is the key to unlocking the vast potential he believes exists in the Sirius investment story.
‘We expect it should catalyse a major re-rating of the shares,’ says Shore Capital's Low.

Liberum is forecasting that the business will be in a net cash position by 2028.

“The size of the equity portion was larger than we expected, and comes at a big discount, but does de-risk the project in the long run,” said analyst at Berenberg.

Marshall Wace LLP reduced their shorts on 30 Apr 2019, i.e., on the day stage 2 funding path is announced.
The shorts fall again from 6.8% to 5.9%.

The annual report of 2018 says "The Company is working towards obtaining firm commitments for the Alternative Proposal and its additional financing requirements before the end of May 2019".

Does the Firm commitments have all been received in the announcement on the 30th of April?
By now
- The additional requirements have been identified. The equity raising has largely completed: the firm placing and convertible bonds completed; only the open offer to existing shareholders left to be completed by the end of May.
- The Initial Bonds of $500m is to be sold to II/bank/fund purchasers;
- The $2.5b rolling credit facility would only come after all the Initial Bonds being sold.

JMP's commitment to the $3b senior debt is still on the best effort basis, not a firm commitment. However, CF has explained that this is how big bank works as they cannot make promise beforehand and take all the risk. CF implies that JMP and SM are pretty sure these will be done.

“The next few weeks represent the critical juncture [for Sirius],” said analysts at Shore Capital.
Why next few weeks are critical? Does this mean SM/JMP will get the purchase of $0.5b high yield bonds committed the purchasers by the end of May (well before the end of September deadline)?

Glad that we will be able to participate this open offer, although the text in the initial RNS seems otherwise.

SM did as promised, as they said this before:
IR: We are cognizant that private investors would welcome the opportunity to invest in the Company through an Open Offer should we pursue a capital raise in the equity markets. The Company is keen to service their private investors and although it is a route to raising funds we are unable to comment further on this aspect of fund raising."

In stage 1, private investors got 2 new shares for every 25 that they already own. In this round, we only get
1 in 22. I have planned to take all. As the offered is less than expected, I have got more from the open market.
The chance to get the shares near 15p may be short-lived, when more details/comments from the company and when analysts reports and ratings become available in next few days/weeks.

Thanks, news, for quickly making this available here.
Yes, it is very interesting to see detailed comments from CF at this critical time.
He did quite a lot interviews in the early years (with accessible video), however, he has not done so for many recent years.

casa: "the high yield bond is senior secured and expected to be at a coupon of ~10%
The RCF (revolving credit facility)will be priced at Libor +500bp(libor is currently 2.75% so thats 7.75% to SXX.) "

casa, yes, it seems that the interest rate of the Initial $500m high yield bonds may be very high, i.e., 10% or a bit over; while, the interest rate may be lowered later in case SM would issue more later when the mine has made more progress.

They may issue more such bonds, as the RCF might be more expensive than 7.75%, or the interest rate of the new bonds issued at a later time could be much cheaper to SM (i.e., with an interest rate lower than 1.75% or 10% ).
The RCF may be just offered there as a backstop.

Great, this is almost already sorted out!

"Sirius Chief Executive Chris Fraser said the co spent a lot of time over the past 6 wks talking to high yield funds and expected to get the bond issue "DONE."

"Mr Fraser explained that JP MORGAN would not have offered a $2.5 revolving credit facility unless it believed it could be SYNDICATED to other investors. They [JP Morgan]...wouldnt say OK we will take all the risk...BIG BANKS arent run like that."

https://www.ft.com/content/e8e3371a-6be5-11e9-a9a5-351eeaef6d84

“The next few weeks represent the critical juncture [for Sirius],” said analysts at Shore Capital.
As the firm placing and convertible bond selling has been done, Why the next few weeks are critical?

Will SM with the help of JMP complete the sell of the $0.5b high yield bonds well before the 19 September deadline?
As SM has 10.7mtpa TorP, $2.15b assets/cash, the bonds should be secure enough.
Its interest rate, say a bit over 10%, should be high enough to attract buyers.
Given the sell is handled by JMP and JMP will also provide $2.5b revolving credit behind the bond, the bond sell should be successful.

"The placing requires approval at a general meeting, on 21 May, and, it is conditional upon the completion of a separate convertible bond funding which seeks to bring in a further US$400mln of new capital".

As the $400m convertible bond raising is done. The only condition left for this is the approval at a general meeting, on 21 May,

Existing shareholders are entitled to pay for 1 share for every 22 they already own.

https://www.proactiveinvestors.co.uk/companies/news/219436/sirius-minerals-prices-new-shares-at-bottom-of-range-raises-extra-us25mln-219436.html