debt structure?, page-15

I spoke to investor relations today about the deal. As I had hoped it was a genuine equity deal (not an asset deal).

This means that CNNC bought a 25% equity stake of LH mine which takes into account the mine's project debt as it currently stands. Just like when we buy shares in PDN we know that debt is associated with those shares (as opposed to buying a % of the unencumbered assets in the company and letting that company worry about the debt on their own).

As stated in the announcement the offtake component of the agreement will allow CNNC to purchase its pro-rata share of product at the prevailing market spot price. PDN management are happy with this 25% level of LH's production to be exposed to spot pricing (vs long term pricing). In return, and as we could all imagine, PDN will get many benefits that come with having China National Nuclear Corporation as a joint-venture partner.

PDN will not use the $190 m proceeds to pay off any debt at the LH mine (this debt will be serviced by revenues from LH itself). The $190 m of CNNC proceeds will be used to pay off corporate level debt (one would expect this to be the nearest dated convertible bonds which expire in 2015).

So I am comfortable that this was a good equity deal which values the LH mine asset at USD $190 million * 4 plus the debt LH mine project debt. I was worried that if this was an asset deal it would value the mine at just USD $190 * 4 with PDN stuck dealing with the LH mine debt on their own.

Like I had said before they did mention that this was an equity deal which technically speaks for itself but given the lack of understanding by everybody on the forum (including myself) I wanted to clear this up.

Now that it is cleared up...

We can deduce that if CNNC value the equity of the LH mine at $190 m * 4 = $760 million then PDN is ABSOLUTELY UNDERVALUED at current prices. The current market cap of PDN is around AUD $530 million, yet PDN's 75% equity stake of the LH mine is $190 m * 3 = USD $570 million = AUD $650 million. Even if the equity value of all of PDN's other assets is zero, then PDN is still undervalued based on their 75% stake of LH alone, as can be seen by the simple calculation above.

I hope that I've explained this clearly to all. Let me know if anybody isn't clear on something and I will try to clear up confusion.

And I'm sorry that I didn't get to write this post earlier today. Perhaps it would've inspired those shorting to think before they leapt after consideration of the market cap valuation arbitrage demonstration above which shows PDN's discounted market valuation. With a strong day currently unfolding on European markets now and the US pre-opening looking very green I hope that shorters won't be losing too much sleep tonight.

"Best of luck to all"