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Si90 - I agree. IMHO this is just loose language between Secker and a journo. At its most basic interpretation this merely says what we already know - which is that the $420m Sonora project (not BCN) has raised $150m and needs to raise another $300m to include some w/cap. The issue has always been how that is raised between the project shareholders of which we are currently a 77.5% shareholder. That and the prevailing BCN share price will determine the number of shares that have to be placed by BCN to fund their contribution.
and how will they take control.........?
I must have my binoculars the wrong way around.....
1 - If Ganfeng increase their stake in BCN they will be obliged to bid for the whole company. Their option is to acquire another 27.5% of a project subsidiary at a price linked to the main share price - but whether at 25p or 35p makes a difference of only a couple of million dollars or so - completely irrelevant to Ganfeng in my view.
2 - Any increase in their stake will surely be good news - we have all guessed at the shortfall to be plugged (perhaps say between £50m and £100m.) The big share holders will step up for their share at least - which means the market has only got to find say half of that number. No great challenge there given that it would lock in the funding and secure the path to the much higher enterprise value we all know is there.
3 - Question is whether the shortfall is raised by a placing or rights issue. I much prefer a rights issue as I want to have the choice whether to be diluted or not - although even then it is only a question of having a smaller stake in a bigger value pie. Given that Ganfeng can't raise their percentage in BCN without triggering a bid perhaps they would prefer that too - but clearly they could arrange to participate in any placing at a number which kept them to 29.99%.
So, in my personal view, bring on the placing or rights issue asap please because it is the key to an increase in the market cap. Presumably the opposite view is the difference between the position of an investor and a trader - both of which have their place in this affair.
For those not in Prudential - the RNS re reduction in their holding will be in connection with the demerger of M&G from the Pru. I have not done the maths but I suspect it is just a re-allocation.
CYB - appreciate your views which are as varied as any. In the same vein:
1 - I don't think covenants will breach at Dec 19 (test is net debt: EBITDA 4.25x and EBITDA : Int 2.5x). EBITDA running around $150m annualised at present - maybe a bit less and debt for covenant is $637m with interest at say $50m. So they are bang on the number at end of Q1 but with diamond sales / debtors to be much better at end of Q2. Remember also the figures are probably on a rolling 4 quarter basis so still have better Q3 FY 2019 EBITDA numbers in them. Position will be much starker at Jun 2020 (tests are 3.5x and 2.75x respectively) To hit 3.5x they will need EBITDA to stay flat and the net debt (including BEE , less diamond debtors) to be under $525m.....All that said management are confident with bank group support and I would understand that the bank group would have no problem with a temporary waiver or a mild reset / delay (at a price on the interest rate) in the ratchet until Project 2020 produces. Lets not forget the £100m bank group - which is undrawn anyway have collateral over the current £100m of inventory and receivables today - why would they take precipitate action.
2 - Management can't talk to 'the major debt holders' because it is a bond with a trustee and no-one knows who holds the bonds which are traded. I think covenants are only in the senior lender bank group and the 2nd lien bond relies on cross default.
3 - I must correct an earlier post 0f mine. I had maintained that debt increased by $25m in the quarter because we needed to allow for the reduction in diamond debtors - in fact on checking I confirm that the covenant net debt figure of $637m (which increased by $42m is after deduction for diamond debtors so the original analysis of debt have increased by $7m less than inventories increased is in fact correct. My apologies to other posters.
Nothing material new on the callI BUT I was hoping to be take away stronger confidence vibes to be honest. I would not rate management's performance on the call at better than a 5 - they sounded tired to me
...... my interpretation - don't expect much better than cash neutral for the next 3-6 months (but was that to set low expectations?). I took some encouragement from the seemingly calm attitude to bond refinancing which is still 30 months away (but will need to be dealt with before June 2021).
At the covenant level (including BEE) net debt is up 42.5m. Working capital assets (inventory and receivables) is only up $18. So at this level net debt is up $25m. What none of us know are all the other moving parts and timings of the cashflow statement in the quarter e.g. creditor movement, items of annual expenditure; cash payments for higher capex which was still around in Q4. Maybe the call will clarify but I doubt it. Half year numbers being set up to look very good by comparison........imho.
Bonkers!. Max 20% downside vs 500% upside.....
My guess is that any rearrangement of the Annual Report publication dates is to allow for the Board Meeting tomorrow (as advised by PS in recent video) which includes the Ganfeng director for the first time........That could be good or not relevant at all to the SP. Can't see anything on the bad side from it per se.
I hear you Mr C and I understand the frustration. My average is just about ok but I have a fair chunk from the 80-90p days myself.
I can also make the case that the remaining shortfall might be better than we think. Assuming the 50:50 scenario (where Ganfeng take up their option) then my numbers could be:
1 - Project Cost $420m (ignore any working capital and assume it is raised separately as a bank RCF)
2 - Less Construction Savings of say $50m
3 - Less Financing already raised $150m (Wolfi - I recognise that you disagree with me on this point and that is fine - it just makes the final gap even smaller)
4 - Leaves $220m i.e. $110m each.
5 - BCN have say $38m in spare cash today (£22m just received and existing cash on hand) and the sale of the additional 27.5% to Ganfeng would raise another $12m appx (at 30p per share).
6 - Plus lets say that they can get $25m out of /from Zinwald in the sort term (total guess)
That would leave only $35m to be plugged - say £30m
(I do not include the Hanwa additional $25m because I assume that if it happens it would come in as equity not debt)
so the £30m shortfall could be raised with say 100m shares at 30p increasing the total shares in issue to 292m.
292m shares would imply a target share price of >£1 based just upon a 50% share of the $800m post tax Sonora NPV to which we need to add a number for the remaining share of the post tax NPV of Zinwald (too many variables to hazard a guess at this element).
I think it was an option to buy the other 50% for USD30m
fair enough Roger65...but I still do not understand why the contributions from each party (say 50% from Ganfeng and 50% from BCN in the scenario where Ganfeng take up their option) are calculated at the gross level before accounting for the Project Financing that has been raised against the project. Surely it is the shortfall in the project financing that need to be met my the JV shareholders. Surely, the BCN contribution can't be mostly in the form of the proceeds of a Loan collateralised on the project
Strangerstill - tend to agree. Not sure why everyone is flummoxed. There was a discussion posted on this board over the weekend of the end of August...the distilled version of which was:
Project costs say $450m including w/cap; less Ganfeng sourced cost savings of say $50m and project financing from Redkite $150m leaves $250m project funding required - of which 22.5% Ganfeng project shareholder funds $56m leaving funding gap of c$200m. Little bit from Hanwa and perhaps some from Zinwald means Mr Secker needs to find around £150m (say $125m - $175m). Company is authorised to issue another 308m shares which points to about 50p per share. Deeper pocket investors might be happy to underwrite an equity raise at 50p per share and blow out PI's. Of course there any many other ways to plug the funding gap (increased debt / Mezzanine / shareholder loans) - this is the one of the most negative for PI's i.e 100% equity. For some reason people think that Ganfeng will fund 50% of $450m (presumably because they argue that they have 22.5% at project level and 30% at group level - hello apple and pear) worse still that they will do it despite the fact that there is a US$150m RedKite Mortgage on the project and worse still they seem to think that most of the BCN part of the other 50% (which is the wrong percentage to start with ) will come from the proceeds of the red kite loan. Ho ho ho! i.e it is alleged that BCN have very little left to find.
Whatever....I am not sure that even I believe the equity raise can be at a premium to the prevailing share price - which either means the share price will have to be higher than today OR bigger investors get to eat your lunch!!!!
Not all doom and gloom ( and I have a fair wedge invested long here) for those who do not suffer from "how come I did not double my money in 2 week syndrome) the fundamental value once financing is in place is £1.50+ ....BUT only once we are the other side of the fundraising required to plug the equity gap.
I am very happy to see the May Flies evaporate over the next 3- 4 months with resultant withering of the share price......
Of course ...as I have often been told before, I could also easily have this all wrong - and for sure, some of it must be wrong.
Unless this thing starts moving before the end of October, I can feel a juicy sub 40p last 30 day average share price looming for some lucky major investor.......maybe those that get in now and nudge the average price up by 10-15p will see a handy short term return on their foresight.....
I see Winton added to their short yesterday. I guess the Col would say that added weight and inability to hold the SP down is a good thing. Nevertheless, they are persistent in this tug-of war. We will defo need to work together and be equally determined. Good time for management to have another root down the back of the sofa around the 3rd week of October.....
Good post PSB. That is pretty much how I see it. $150m EBITDA (at current stressed market conditions) less maintenance capex $40-50m less interest $40-50m leaves $50m free cashflow + larger finds + Project 2022 efficiencies.