Member Info for Zarro

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.

* in (a) the second reference to Ganfeng should read Bacanora

I think it is probable Hanwa will fund $25m - it is stated as such in the accounts. It is also possible that Oman will fund $65m. I don't think there is any real problem raising the total required funding - the point that some people may be missing is that those investments and Ganfengs 29.9% Plc share - will be done via the placing of new shares. The funding required will be there (which is why Secker has, in my view slightly misleadingly, confirmed that the remaining gap is very small)......but what matters for the future share price is how many shares are issued to satisfy the funding that is raised. The only bit that is outside that consideration is what Ganfeng have to put in at the Project level - presently 22.5% of the (in my view) $270m balance of funding.

But there are not enough shares authorised to fund $210m (77.5%) at today's share price so there is something missing. For example (a) Ganfeng increase the project level investment to 50% - which increases their funding obligation at project level and produces another $10m for Ganfeng (b) the placing is done at above market price (as happened with Solgold) (c) Zinwald produces some funds from an IPO (d) lottery win (e) early visit from Santa

I am pretty confident that Ganfeng will have anti dilution protections in the form of a first refusal to take up any new equity issue - they would have been mad not to.

Davetherave - I think that is right but as they do not want to be diluted (and have pre-emption rights in their agreement) they will take up 30% in the placing requirement at the Bacanora level to maintain their 30% interest.

Extract from note 10 of the company's full year accounts states as follows:
"RK holds a fixed charge security over the shares of various subsidiaries of the Group except for Bacanora Lithium Plc, Deutsche Lithium GmbH and Zinnwald Lithium Ltd. RK also holds a fixed charge security over certain bank accounts held by the relevant UK and Canadian holding companies and Mexican subsidiaries. RK holds a floating charge over Bacanora Lithium Plc’s assets not covered by the fixed charge. RK holds fixed and floating charge over the assets of the relevant Mexican subsidiaries related to the Sonora Lithium Project."

Agree with most of what been very well said by Strangerstill and most certainly the sentiment. The bit I hold a different view on is where the Red Kite funding sits. As far as I am aware this funding is secured on the physical Sonora project assets - not Bacanora's ownership of an interest in those assets. If so, that would effectively make it is a liability of the project venture company. For that reason I see the funding requirement, and the proportionate obligations to finance it by shareholders, as being based on the number after deducting that funding; in the same way as if you were buying a property with someone else with a mortgage raised on the property you would contribute the equity proportionately based on the net figure - Ganfeng are not going to contribute their percentage based on the gross value when Bacanora's contribution is comes from funds raised against a mortgage on the Project itself. I really hope I am misunderstanding this or someone can correct me because obviously that makes the numbers even better. However, if I am right, the numbers would almost certainly suggest that Ganfeng expect/intend to increase their stake. Does anyone know the position for sure?

Blimey - thats a little harsh. They got a good deal but (a) they will probably end up investing well over $100m at the same market rate as we can all buy the shares today (b) add considerable expertise (c) work on reducing procurement costs - which were reconfirmed at $420m for fund raising calculation purposes but now said 'to include contingency' - often seen as 10% (d) buy 50% of all the output at market rates.

ok - I get that....and I apologise in advance for droning on about this - but other than Ganfeng's 22.5% contribution at the project level (on which there is a difference of views about whether it is based on $420m or the net $270m post Red Kite senior funding) which will have to come from their own external sources, won't the rest of Ganfeng's and Hanwa's (and others?) investment at the BCN level come from the placing - less whatever of the $40m existing cash is free and available? That still looks like £125m minimum to me required from the placing unless they can somehow achieve the 60% debt and 40% equity structure at the project level that VSA are basing their assessment on.

Degsie - that is a fair shout. It was 500m more last year as well (I had thought it was 500m in total - apologies)......but since they issued 58m new shares in the meantime the new authority is a potential small increase on what was agreed before. But no great change.

As to the how many new shares they may need to issue now, I would be interested on your view about how they will fund Bacanora's 77.5% share of the balance of the $420m project cost with the share price currently at 26p - without issuing say 400m+ of new shares (which to be clear imo even at that level, or even 500m of new shares, would still leave an 80-100p share as very achievable).

up to another 500m shares as opposed to the previous status of up to another 308m shares is a bit of a bomb shell given Secker's previous warblings about having all but closed the funding gap. I never believed it because it omitted to mention the number of shares that those nailed on investors would demand for their investment. That said I thought they could get it done within the 308m shares!

So looking ahead I guess the key dates now are:
1 - 12 December - AGM; unlikely to be of much interest in terms of new info.
2 - February 2020 - v important now to see how they unlock Zinwald and whether that produces any 'other sources of funding' to help with the Sonora project.
3 - By 30 June 2020 - Project Cost efficiencies, placing detail, decision on Ganfeng increasing their project level stake.

Kluck - My guess is that it is either a typo or they simply intend to raise some of the money in Euro to fund their expenses in Germany. Frankly, they could just take out a currency option or convert some of the fund raise at spot at the time so it does seem a little curious to do a small slug in currency but I don't think there is any direct link to the Zinwald spin-off / IPO / funding exercise.

Bigger issue is that the amount being allocated to the ordinary / smaller shareholders is paltry but I guess that is the price of getting the institutions to underwrite a chunky placing. The problem for me is that we are asked to agree to give up our pre-emption rights blind without knowing how much is going to be needed in equity as opposed to any other 'financing sources' - although I accept the parties that will be favoured in any institutional placing are likely to include all those who have the muscle to carry Resolution 8 anyway. So we shall just have to hope that the BoD work hard to get what they can from non-equity/'other financing sources' and that the share price does not fall any further - in order to minimise the number of shares that need to be issued. Thats the reality of being a small PI in a shark pool.

But even in the worst case of 692m shares max AND only 50% of Sonora for BCN shareholders I reckon that there is still some value here for investors getting in at around the current share price.

Is the resolution to authorise either (a) up to a total of 500m shares i.e. +308m shares from where we are now, or (b) up to another 500m shares from where we are today which could take the number to 692m shares?

I have assumed it is (b) but the wording is a little open to interpretation in my view.

On this kind of volume anyone with a 50K budget can control the share price to within 0.1p and set up an 'at x% premium to the average last 30 days' position at will............

Can't disagree addicknt. Not only is the financing not certain, as a matter of fact - although I have no doubt it will be secured in due course - the nature of the financing also remains uncertain with an indeterminate number of shares to be issued hanging over everyone.

My maths says all outcomes will, in all likelihood, eventually come good BUT the 'unknown, but announced' share issue that is still to come creates a 'chicken and egg' variable in the meantime because the price of the share at the time that funding is sorted will dictate the number of shares that need to be issued and therefore the extent to dilution for pre-exisiting shareholders and therefore their share of the eventual enterprise value. Ironically the higher the share price at the point of funding the higher the post funding value for pre-exisiting shareholders ....but the opposite is also true. That makes it very difficult for anyone to decide at what price to buy in (or sell out) at today and for the next 8 months at least - noting the company's previous form on meeting deadlines!

crooked = time to feast........

Pretty embarrassing really for the brokers........they matter, but for the life of me I don't know why. My pet hamster could do a better job.......

Come to think of it my bloody pet hamster ("Sparkle") was the one who got me involved in the first place.......

Thanks Brady. The VSA report helps a bit ...but does not explain how the $100m debt shortfall is plugged

20% of $420m equates to $84m to be found - which can be comfortably accommodated from a BCN new share issue and still providing very good upside of at least 4x todays price against underlying economic value........

there was talk of them investing a further $25m.....that never progressed.

DaveTR - I don't know the facts on the anti-dilution provisions but in any event, in a rights issue they won't be diluted as they will step up for their pro-rata share. On the Oman and Hanwa investments - you are right; they were never concluded but I believe that they continued talking so they may decide to get involved now as part of the required fund raise.