Normally, I do find much of interest in a half yearly report. But the recent half yearly report released by CAP is an exception.
By way of background, in 2013 CAP engaged a consultant for financial modelling and negotiation. CAP and the consultant agreed on a success fee basis with the consultant to be paid on first ore production/sale. The contingent fee is $1.945,087. This has been regularly included in annual reports as a contingent liability.
The Half Yearly Report to December 2019 notes that in 2019 the consultant and CAP entered into another agreement with the consultant to obtain equity and other funding to carry out the BFS. The agreement included a break fee of 0.25% of the funds arranged or hours worked at an hourly rate. The break fee at December 2019 was $794,250.
Now here is where it gets interesting.
Note 7 to the Half Yearly Report to December 2019 - being "Events After Reporting Date" states that on 21 January 2020, another agreement between the consultant and CAP was entered into.
This agreement is that the consultant would receive CAP shares as payment of the contingent fees in the event that a takeover bid is made that the consultant believes will be successful.
My questions are:
* Was this an afterthought by the consultant, and the consultant realised the agreements did not cover a takeover and there was a risk that he/she would not get paid? Effectively just the consultant covering their fee as they should have in the first place. Or
* Is there real prospects of a takeover offer that could be successful and that is why the agreements have been drafted to reflect this?
From my perspective, a takeover over is possible.
Firstly, CAP needs $25M to fund the BFS. CAP's market cap is approx $8M based on the current share price. If similar Mitsui deals cannot be made, then why would a financier/funder not buy the whole company and then reap all benefits of funding the BFS.
Secondly, SIMEC (Gupta's GFG Alliance) recently offer a funding deal of $100M for 51% of Havilah Resources largely because of the Grants Iron basin and the synergies with the Whyalla steel works. That offer was rejected by the shareholders - possibly because the offer included all HAV's resources, not just iron ore. CAP just has one major project, therefore unlikely to have the same issues.
Thirdly, recent mining disasters have highlighted the importance of stable supply of high grade iron ore. Any steel factory in the world could look at buying CAP in order to secure supply of high grade iron ore.
There could be interesting times ahead. I'm interested in the thoughts of others about the possibility or prospects of a takeover.
CAP Price at posting:
2.9¢ Sentiment: Hold Disclosure: Held
