Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Noting tomorrow is the last working day before the 3 year anniversary of the signing of the Zinwald/Solarworld deal (which has had two or three x 6-month extensions agreed) I wonder if it will be Cupid or Al Capone who make an appearance tomorrow.....
Just rummaging around the archives and noted that the original Zinwald investment agreement with Solarworld was signed 17 February 2017 (with an RNS on 21 February)..........
Anyone have any views on the reasons for recent weakness? Is it because of expectation that there should have been a trading update by now or perhaps Hong Kong vulnerabilities? My hope was / is that we are in at the start of a more positive phase for this company.
Per the presentation the company is trading on an EV of 5x adj EBITDA of $150m (which is fair enough as a multiple at present), of which approximately 4.25x is debt and 0.75x is equity. If total debt gets down by $115m to $525 (i.e. 3.5x EBITDA) then, in theory, not only is that a manageable level for refinancing but equity value doubles (to 1.5x EBITDA) i.e. 20p. This basic view assumes the multiple stays unchanged, that there is no recovery in diamond prices, EBITDA is unchanged and that they come up short on Project 2022 in terms of cash generation................
yawn....I can feel a filter coming on. Anyway shouldn't you be at school by now?
You can google a picture of the Governor or Sonora with Chairman and deputy Chairman of Ganfeng just a few months ago in September 2019. Is Mexico really going to start messing foreign investors around now and say it did not know anything about this? Also signing of NAFTA today - which is not directly related - but we should have some confidence that Mexican Government really do not want to materially annoy US and Canadian mining investors (or Chinese ones).
Possible 'Chinese Whispers"....This is what I get on Google under the heading of Insecurity in Mexico Lithium Mining and it is nothing to do with validity of concessions.......
"The figure is similar to the reserves that two of the countries with the largest amount of lithium resources in the world have in all their territory, Bolivia or Chile.
If the estimates were confirmed, Mexico could become a key player worldwide in the thriving lithium industry, a fundamental mineral for the manufacture of electric car batteries, laptops and cell phones, said Sergio Almazan, who for 15 years and until 2019 directed the Mining Chamber of Mexico (Camimex).
“The prospects look good for Mexico (but) security, as in the whole industry, not only in mining, is a problem that we have to solve in the country,” said Almazan, who serves as an advisor to Camimex, which groups companies such as the giant Grupo Mexico and Penoles.
“Mining investors are always looking for the best features to invest (and), without a doubt, one of the issues they observe is the issue of security,” he added.
Mexico last year recorded a record 34,582 homicides, according to official data, underlining the challenge facing President Andres Manuel Lopez Obrador to contain the spiral of violence that since 2006 has also left 61,000 missing in the country.
Last week, Coparmex, one of the most important business organizations in the country, warned that violence is causing a loss of confidence in investment and consumption in the Mexican economy.
Mining, which contributes 3.8% to local GDP, has also suffered the ravages of crime. Two months ago, a truck carrying dore bars from a Fresnillo mining unit was assaulted by an armed command.
The lithium deposit, which is estimated to start producing in 2021, is located just over 100 kilometers from the place where in November last year three women and six children from a Mexican-American Mormon community were riddled by alleged members of the crime organized.
It was not possible to immediately get a comment from Bacanora Lithium and Ganfeng.
In a recent interview with Reuters, the Under Secretary of Mining, Francisco Quiroga, said the government worked together with the security forces to give the sector greater confidence. “We’re going to make it harder for something to be stolen,” Quiroga said.
Two other lithium projects are also currently being explored in the northern states of Baja California, San Luis Potosi and Zacatecas, regions that have been suffering violence from organized crime gangs that have disputed control of the territory for years."
29 Jan - Anglo American said first cycle rough diamond sales from De Beers rose to $545m on higher demand and inventory restocking.
The mining giant said the result was up from $426m in the final cycle of 2019 and $500m in the same cycle a year ago.
Re covenants I would just add that as far as I am aware the covenants are set in the bank facilities and the bond relies on cross default. Since the only drawn exposure to the Banks is under the BEE Facility (US$50m) and the other bank facilities are undrawn plus there is US$50m cash in the bank Plus US$90m of liquid diamond inventories and US$17m of diamond debtors AND the Banks have a first ranking collateral on all assets ahead of the Bond, the Bank's have no incentive to call default and create chaos; and so will be very unlikely to do so. No doubt they will (i) extract their pound of flesh on fees for each waiver and apply a heavy interest rate margin ratchet for any utilisation (ii) keep the covenant waivers on a short leash (i.e. one quarter at a time) to stay in control BUT I believe a covenant breach is a red herring in practice. The issue comes as we get 12 months away from May 2022 (when the Bond matures and the auditors have to sign off on going concern). So the crunch is the need to get a bond refinancing done in the next 16 months (for the June 2021 year end) and that will be critically dependent on how much needs to be refinanced and the level of visible EBITDA to support it. If they can get net debt including BEE down to say $525m (cashing in some of the high level of inventories when the price recovers will be important) and EBITDA running at say $150m then with leverage at 3.5x, a refinancing should be doable at the right price.....but it does look like it may be squeaky bum time as the months roll by.....
trying that again in english this time:
....suggests to me that someone wants the share price at 35p for the placing. Depending on your opinion about how much needs to be raised that allows a view to form of the eventual total number of shares in issue against the NPV of Sonora (and [some of] Zinwald?).
....suggests to me that someone wants the share price at 35p for the placing. Depending on your opinion on how much needs to be raised that allows a view to form a view of the number of eventual total number of shares in issue against the NPV of Sonora (and [some of] Zinwald?).
Spooky. We are just about exactly where we were this time last year. I wonder if anyone has noticed anything positive happen in last 12 months........
Did Wace take their short below 0.5% / close it altogether, at the end of last week?
Dave - that is my understanding. My guess is that the Placing allocations for the major/key shareholders investors will be determined on the basis of final % target holdings so that the adjustments will happen via that process in due course.
I apparently have to stand corrected on my view that the Ganfeng project level contribution would be based on their % of the project requirement after deducting the Red Kite Financing. Secker is quite clear in the proactive interview that Ganfeng's obligation is 22.5% of the $420m. He mentions $100m in the interview - but strictly speaking it would be $94.5m on these numbers. Which is clearly all very favourable news. I had e-mailed the company on this point but not received a response. I have chased again for a definitive reply.
On that basis of what Secker has said the remaining required funding is only around $175m - of which their current cash balance is $50m so assuming half of that cash is free and available means $150m to be found which would be a placing of some 350-360m shares at todays prices taking the total to around about 580m shares against 77.5% of the total Sonora project post tax NPV of £615m ($800m). Any sustained increase the share price would further reduce the number of shares needing to be placed. And then there is whatever Zinwald throws up. Happy days.
Or investors believe today (before the news on funding - because it will probably be too late then) that the very very worst case scenario is 722m shares for 50% of a fully funded project with a (100%) post tax NPV of £640m plus 50%+ of Zinwald thrown in on top. Then the share price might start to creep up nearer that implied value and that becomes self fulfilling because less shares would need to be issued in a placing at a higher price. Plus also, when on stream, we are talking about at least 50% of the £180m projected Sonora EBITDA which might fund dividends of say £50m+ for a 50% Bacanora share which points to broadly double the presently calculated post tax NPV value assuming a reasonable yield ......and then there is the upsizing of production capacity and then there is the rest of the stuff in the ground that is not in the calculation .......and .......and........
Its good news in the sense that it underpins the current share price. BUT what we existing shareholders still do not know is how much needs to be raised from the BCN side of the project and therefore how many shares are going to end up getting issued. That is what will dictate the price this share will end up at. We have all had a go at 'guessing' what that will be but this is another 31m shares. Is the authority to be renewed at the AGM for up to another 500m on top of that taking the risk of dilution to 722m? Are we going to see any more mini placings ahead of the 12th? The total number of shares keeps creeping up because of issues at rock bottom prices which is a little unsettling.
Fair enough and it would be very nice if that were right. I have mailed the company to ask.
from page 11 of the latest year end accounts:
"In the financial year, Bacanora has secured US$150 million of conditional debt funding from RK Mine Finance, and in October 2019 Ganfeng acquired 29.99% of the Company and 22.5% at the project level for a total of £22 million, and has a commitment for an additional US$25 million of equity finance from Hanwa, thereby reducing financing risk. The Company is currently finalising its plans to re-engage with the equity markets to secure the balance of its funding requirements."
Dave I can only point to the following:
1 - "RK holds fixed and floating charge over the assets of the relevant Mexican subsidiaries related to the Sonora Lithium Project." That is a straight lift from note 10 to the accounts. If we agreed to go and buy a £300k house on a 50/50 basis and I got a loan for £150k with a 50% LTV mortgage on the house would you be happy to put in your £150k contribution in return for a 50% share of the £150k equity in the house?
2 - Hanwa are not 'gifting' any further investment - it will be raised in the placing with new shares issued - so it is still part of the shortfall.
3 - GF will almost certainly take up 30% of any new share placing (this will plug part of the cash shortfall but is also part of the new shares to be issued in the placing)
4 - BCN can't use all their current free cash. They have their own running costs to meet for 2-3 years as well as a potential $30m bill to exercise the Solarworld option on the other 50% of Zinwald.
Tivman - you are right. The $420 total cost probably includes the ($25m?) drawn and spent to date or part sitting as cash with BCN - there will probably need to be an adjustment for this between the project partners....but it is small numbers.
To my list of possible sources for the missing pieces of the funding jigsaw I should have added (f) RK increase their funding for the project - by say $70m (they have a condition that at least $200m goes in behind them) (g) RK is refinanced by a new Lender at a higher sum - would be expensive in make whole / early repayment charges (h) a new mezzanine lender agrees to provide debt funding behind RK. No doubt there are other possible avenues.