Ann: Quarterly Activities Report and Appendix 5B Sept 2018, page-14

We are both allowed to speculate on funding and I enjoy the discussion on all matters. It's your prerogative to remain invested in a company where you feel the Directors aren't interested in a mega pay day achievable by bringing mine production online. I would ask however that you don't confuse my assessment of their personal ambition with an assessment of their competence.

On reflection, waiving the fee probably doesn’t incentivise NXE to do anything other than take more time to meet their draw down obligations. The waiving of the fee would be an empty gesture by Arena if they already suspect there was going to be an imminent drawdown on remaining tranches. Regardless, Arena are already earning $400k p.a in interest on Tranches 1 and 2A.

In my experience a capital lender specialising in unsecured illiquid assets does not waive termination fees (in this case equivalent to $2.4M) unless they foresee a better fee being obtained from elsewhere. Arena either wants as many of the convertible notes to be in play or the underlying asset. Nothing has materially changed for Arena in terms of risk with NXE so I’m not sure why they would want to withhold funding? 

It’s win-win for Arena. If NXE becomes an operator, convertible notes and related options payout big. If NXE fails (e.g. due to Director incompetence or any other reason), Arena will bail the company out and flip the asset. Arena already holds $4.1M in convertible notes in a company with a market cap of $8.5M sitting on a billion-dollar asset. I don’t believe they are going anywhere.

Anyway – the above fluff aside - what’s probably more relevant to our discussion is a key term in the original Arena funding agreement that I believe remains unchanged (see announcement page 3). The term clearly states that the market cap of the company must be at least A$12.3 million before Tranches can be drawn down. I believe most, if not all announcements regarding funding changes to the Arena agreement have stated that there are no changes to the underlying terms - other than the termination fee waiver and splitting of Tranche 2 into 2A and 2B amounts .

On the market cap requirement alone, NXE have been unable to access the 2B Tranche (or any others) since late August. A quick review on my part seems to suggest all the feasibility drilling, test work and scoping study results were announced after the market cap fell below $12.3M.

According to the September Quarterly, Tranche 2A was drawn down in late May (although other announcements said June) and from what I can interpret from prior announcements there should be anywhere from 2 – 4 months between the release of Tranches. Furthermore, as most of you can tell, Tranche 2B alone ($1.85M) wouldn’t be enough to meet the Capex requirements.

So… a strange sequence of events indeed:

1. Late May Tranche 2A is received, meaning late August would have been the earliest for Tranche 2B (thus private raise required);
2. Red herring announcement on termination fee waiver - championed as some kind of win for NXE;
3. Market Cap takes a dive - significant delays/ inability to access Tranche 2B in late August / September;
4. Scoping Studies confirm Capex required is $5M+ more than Tranche 2B & market cap still under $12.3M at Sep Qtr.;
5. The reason Tranche 2B “was not received” is because NXE fell short of the release terms to receive funds;
6. NXE need to renegotiate terms of Arena funding;
7. Blue horse shoe loves NXE.

I still firmly believe Arena want to provide the funding (not withhold it), and I think pe981 is right with regards to Arena being involved in the material funding negotiations underway. Interesting to see what pops up next week.