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Whilst we are dealing with the hypothetical a few thoughts which may or may not be agreed with - but they are what I think.
I don't see any reason for an 'emergency fund raising' for at least 12 months BUT if there were another (and I did support the one last time) even at say 10p I would follow my money without hesitation because (a) I think the company can be worth 25-50p - even with the current debt amount (b) it should be viewed as a redistribution of the total market capitalisation between debt and equity; and (c) it would substantially get rid of the debt fear, which would be very positive for the share price.
The Bondholders are (normally) a disparate group of investors and will only act on requests by the 'passive' bond trustee. There is (normally) no wish by those investors to become equity holders and certainly not when the interest on the debt is being easily covered.
Provided that leverage remains below say 4x EBITDA (and hopefully it will be better) then a refinance/restructure to repay/extent the debt profile should be achievable. The question is the price of the coupon demanded (and that will in part depend on market conditions at the time) which will then inform the level of coverage for the interest bill - which is more than comfortable at the moment
What I don't like about the bond's current discount to par is that if this persists, as we get closer to maturity, then the wrong sort of 'investors' start to get interested because they start to see a cheap way into the equity of a company with a great asset base and that needs to be avoided at all costs. Ps it is my understanding that equity has to vote to accept any dilution from debt - which clearly on the current profile would never happen BUT as we get much closer to 2022, if the dark clouds are still around things would look a great deal different and we can expect the vultures to be in both the equity and the debt seeking to control the voting.
We are miles away from any such scenario today and in my view there will be no conversations going on with current Bond Holders (i.e. Trustee) although there will be with the Bank Group and there may be with a debt advisor in relation to an 'early refinancing of the bond' - if that could be kept secret and the bond partially bought back at a discount that would be great - but I cannot see how that could be achieved.In any case I would be very supportive of an early refinancing.
In the meantime GL all long term holders and my personal thanks again to Col D for his informed and balanced opinions.
At risk of being shot down, from what I can see the next announced Ganfeng Board meeting seems to be on Monday 29th October (to consider Q3 results). Of course, they may have delegated matters on the BCN investment to the Executive or they could hold a meeting earlier - but from past performance Ganfeng appear to give 2 weeks' notice on announcements of Board meetings. Just saying......
Phew! That's a relief to know. So Secker in fact sold a 45.75% interest in a project with a $150m mortgage on it for $245.5m and my shares are worth over £3.50 each. We should all be very happy with that and I can now jump back aboard the Skylark and head back to planet nonsense.
Only joking....I really hope you are right
Cheers Sjb and have a good weekend.
For the avoidance of doubt, in the picture I have painted (with an equity raise at 50p) Ganfeng will apparently speak for 90m of the 308m shares (i.e £45m) and we hope Hanwa and Oman speak for another 140m shares (i.e £70m (being $90m divided by 1.25 = £70m at 50p per share) then there is only say £40m (80m shares) raise required from the market . Seems doable for a potential 2-3 times uplift against published NPV's and then higher as the project moves towards production and real cashflow.
Good weekend.
Sjb - my interpretation of the RK conditionality is that it is not as bad as it sounds because the RK condition will be at the Project level and at that level if Ganfeng are putting in $60m there is only $140m (£110m) or so needed from the BCN side ( I am ignoring any value that may count from the agreed 22.5% share purchase because it depends on how that is structured and it would be double counting for our purposes here.)
All in all, with a fair wind and some money from a Zinwald IPO I can see how this gets done with a rights issue of 308m shares at say 50p to raise £150m net (i.e. $190m). At that point we have a company with 500m shares and post tax NPV's of perhaps £600-700m (based on 77.5% of Sonora and a post-IPO% of all of Zinwald i.e. after exercising the option over the other 50% ) which would equate to say£1.20-£1.40 per share.
All guesstimates and suppositions and assumptions of course.
Sjb - your scenario is as valid as any I guess. My thoughts (and I stress that I am not saying I am right) are as follows:
1 - I don't think we know how much, if any, of the spend to date (and RK drawdown) forms part of the $420m assessment. So your view of $125m remaining availability may be pessimistic on this point.
2 - I imagine that the RK finance is effectively structured/secured at the project level and hence the Project Shareholders will contribute 77.5/22.5 of what is required net of that senior financing - not gross. Hence my view that the Ganfeng 22.5% JV shareholder contribution at project level would be nearer the $60m mark rather than the $94.5m in your workings.
3 - Any funds from Hanwa and/or Oman will likely be contributed in some form of equity at the BCN level so that the $65 - $90m, if it is raised, will also need to be considered in any equity dilution estimates.
This is why it is so difficult to estimate fair value for the shares today (as is the case with nearly all these exploration / early stage / junior miners). Our existing equity contribution (for most of us acquired in the secondary market) is only a fraction of the cash raise required but is a leveraged play on the implied equity represented by the mineral reserves and it is that which we are negotiating with against those that come in later with the big Moolah.
We know that the company's assets (in the ground) are worth say 10x the current market cap but that does not mean the shares are worth 10x the current share price. The three things we are missing are: [1] how much funding remains to be raised (we have an approximate fix on this) [2] how is it going to be raised - of which the important bit is the amount that needs be raised through new Bacanora equity (if we assume the worst case it will be mostly equity); and [3] at what price per share - as this will determine how many shares are issued and therefore the extent of dilution (this is the complete unknown because it will likely be heavily influenced by the market price of the shares at the time that the fund raising is exercised - whenever that is).
I think we are all confident the number is somewhat more than 40p; the question is how much more.....
Happy days
It will be a little more complex than that - hence my question.
They will fund 22.5% of what Sonora project needs which is say $420 - $150 senior debt = $270m shortfall; x 22.5% i.e. say $60m goes in direct from Ganfeng the remainder $210m to come from BCN (for its 77.5%).
The question is how much of that will be equity funded? The statement from PS was that Ganfeng would stump up its 30% share in any placement / rights issue BUT what mainly matters to us is the total dilution (not where it is coming from) which is a function of how much equity funding is needed in total.
At the moment what I can see is say a $210m requirement less (i) existing surplus cash held i.e. not much (ii) proceeds from the Ganfeng stage 1 investment i.e. $25m (iii) any cost savings (say $42m+?) (iv) possibly Zinwald IPO proceeds (?) (v) possible SGRF/Hanwa investment - but only if it is not in equity) divided by the price equity is issued at (usually a discount to prevailing market unless perhaps Ganfeng / Oman / Hanwa agree to underwrite their bits at a higher price).
I am also conscious that the current share number cap is 500m shares and we are presently at around 134m + 58m i.e. 192m shares so only c300m shares to go unless they approach shareholders to move that restriction upwards.
Can anyone remind me / summarise what is known beyond the $150m from RK and the $25 now from Ganfeng against the appx $420m required. Secker did vaguely cover the subject in a video I saw a short while back but I cannot recall which one. Is the SGRF Oman $65m and Hanwa $25m still in place? Were these elements to come in as equity?
Forgive me for being thick. What / where are the "2 docs open to view now"? Thx in advance.
Hang in there with your views Addicknt - they are welcome on this BB imo. Experience on Aim and with BCN tells you (and should tell all of us) to take nothing for granted and you may be right to be cautious. I still think it is a herring but maybe it is a pink one in the short term. Medium term - my view is that it is a red one. I am still optimistic that any 'Ganfeng Board' discussion will be more about increasing the project investment and/or funding arrangements rather than any risk of pulling out.
Initially I was slightly concerned with the mention of a 'further Board meeting' in this RNS given that in the June HK Exchange filing the equity investment had been delegated by the Board to Ganfeng management to close. However, on reflection, and given the further clear statement of intent by Ganfeng in this RNS I am inclined to suspect that it may be to decide on/approve the increased investment option in Sonora and/or sign of the terms of the project funding. Pure speculation on my part though.
Good post SJB and as good a view as any. Whatever the final detail turns out to be it demonstrates that even if the gaps are fully or partly equity funded the scale of dilution is containable and there remains plenty of potential increase in value for existing shareholders. The current share price is bonkers - but good for those accumulating - and today's RNS provides further reassurance.
Groan - I agree Tomcat. The rights issue outcome is a red herring in terms of the BCN / Sonora equity investment transaction as announced, even if they went on the press the button for 50% at project level. Its peanuts for Ganfeng. The bit that is not clear is the terms for the broader funding gap - who / how / how much etc. and to what extent that is part of the cornerstone agreement. That is what will dictate the share value potential for existing investors - but even then that outcome is only the question between £1 or £1.50 or £2 or £2.50 and so on.
In terms of the remaining sign offs, lets also not forget the vested attraction of the mine infrastructure supply to Chinese manufacturers. The approvals will come. The investment will be made. Quite how the project is funded remains the mystery for me.
Thanks Tomcat - also to allay any concerns re a possible impact from the recent right issue vote the HK exchange filing by Ganfeng in relation to the BCN deal states as follows:
(II) Impact on the Company of the [BCN] Transaction
In spite of certain net outflow of cash flow of the Company, the transaction will not have any noticeable influence on the working capital of the Company and has little impact on financial conditions and operating results of the Company for the year 2019.