Hi guys,
Got a few DM's as to if I'm holding still. Yes I continue to hold, hindsight it would've been smart for me to exit or at least take some profits in the 4's on the first run, or perhaps 2.7ish on the second run but I've reflected and perhaps got a bit greedy here. Still much for me to improve on and a nice wake up call for me to be on my toes and not get too confident. At least we got a bit of love the last two days. Overall, market has disagreed with me for now.
Do I still think its cheap, yes.
Why is it trading near 1.5 then? Well could be multiple reasons, other than the chart having supply hit it after it came out of suspension on a fundamental basis I've spent the weekend carefully going over the deal to see if I've missed anything. Here is my conclusion;
There was a lot more moving parts upon close analysis of the deal and easily one of the more complicated deals I've had a look at, multiple parties involved, multiple obligations, multiple loan books.
As it stands:
At 1.4cents
Market Cap = $25M. This includes for Shares on Issue + Consideration shares for Adidi Kanga + Consideration shares to access the London Gold Loan facility.
EV = $31M. As they have $759k cash (30/06/18) and further liabilities incl. $5M consideration for Adidi Kanga Acqusition.
The global resource;
Keep note the Nizi Leopold is just my guesstimate based on historic grades, Mainema is a resource estimate by management. All together for ownership 5.97Moz.
If we exclude 0 expansion it will be about 4.6Moz.
So why is it trading here with so much gold. IMO I think market is worried on two fronts
1. Credit Raise?
2. The amount of debt. Just reading quickly through the deal $150M shareholder loans owing to FIMOSA, $60M Loans to MGI, $20M loan refinancing, $20M loan from London Gold. Sounds quite hefty but breaking down numbers don't look as bad.
3. Gold price
4. Market sentiment on a nationwide scale for microcaps and on a more micro level for the delays faced here.
Looking at first two points;
1. Credit raise I dont think it will happen...although I could be wrong as I have been many times before. Quarterly said they're getting unsecured loan facility sorted, and they're also in progress of signing off loan with Lon.Gold which will finance them through into DFS.
I assume if they can't get the Lon Gold loan signed off in time then they'll need to go CR route.
2. With all this debt and consideration, lets break it down.
The loans;
Firstly it should be noted the debt will be handed over only AFTER a decision to mine and VEC getting 86.22% of the project.
The $150M shareholder loans owing to FIMOSA will be transferred to AKR. So now AKR will owe to the loans to VEC. AKR is the project itself, so $150M of the cashflow from the project will go directly to VEC.
Other than that VEC will have $20M loan repayable to London Gold.
The other $20M refinancing will come from AKR so the project cashflows will have to cover that.
Now for the consideration to MGI,
Tranche 1: $5M cash and $5M shares for the project satisfying preceding conditions. Which I've included into the current market cap.
Tranche 2: $5M cash and $5M shares decision to mine
Tranche 3: $5M cash and $5M shares on first production sales.
$5M deferred consideration after DFS - this will be payable by AKR
$55M deferred consideration after Construction - this will be payable by AKR.
So the vendors are getting $20M (incl. value of shares) consideration before production for the asset. Then $70M of project cashflows after production is at full capacity
Essentially from this stage VEC will take on a circa $22M debt until positive decision to mine. That is a lot of debt to hedge on a decision to mine, but if things do go wrong for whatever reason I assume they'll have to sell off the $70M of equipment at a discount to pay it off, so they do have assets as collateral.
After decision to mine VEC will have $27M debt and upon production VEC will have $32M cash debt owed to multiple parties.
The rest of the debt will be owed by AKR (the project cashflows), which begs the question after all the debt is paid by AKR, corporate tax, royalties, interest on debt, will the project even be profitable, or will there be any meat left for VEC?
I've gone through the DFS report and Ballieu Holst reports; I think one thing they missed is the ownership VEC will have and also the debt repayments from the project, also the fact AKR will owe VEC $150Million.
Project still looks profitable this is also excluding the Kibali asset.
After tax+royalties NPV $156M i'm happy with. However if they do lay into that 40% contingency I've put, with no upside expansion then there is a risk and their post-tax/royalty NPV edges below to a company like GCY (which is in construction stage at $140M EV).
I think market is being cautious as VEC has essentially taken a $22M liability bet on a positive DFS, and there has been little news released to provide market with confidence and highlighting the quality of the asset to show its worth taking on that debt.
After that the overall net consideration including shares owed by VEC will be $30M+ $20M Debt to Lon Gold. Total $50M cost to VEC once producing.
Rest will be paid incrementally to MGI and VEC from AKR project cashflows.
I hope that makes sense somewhat...this is what I mean by "complexity of deal".
Once again multiple reasons market can be discounting this. I think it really comes down to management nailing in the expansion potential, getting the conditions precedent sorted, getting loan facility sorted so market doesnt have to fear CR, getting some drills out and diving into DFS. They can also chose to run news in parallel with Kibali. Always remember to buy or sell according to your risk appetite and no company should be worth losing sleep over - nor should you ever base monetary decisions on what a amateur stranger like myself have said on an online forum.
Hopefully worst is over thought I'd share some of my diggings. Cheers.
I'll be going back into my cave now lol.
