Running discussion on SP, page-14201

I was as surprised as today's activity as most here. Sure looked like a ballsy prop.
I suppose a bit of a bounce was due, with some TA triggers clearly suggesting oversold, but most bounce traders tend to at least scratch the surface first before they dive in just to see if there are any pustulent sores, and if they are inclined to fester, or to heal.

Don't own, but this would be on plenty of radars now, so just trying to get some clarity in my own head around what might have gone so wrong over the past 12 odd months, and what range of events might need to unfurl before things are fixed.

And there has been a good deal of criticism around Management's ineptness allowing the cash to get so close to the bone, although to be fair, it wasn't too long around that Huayou's 207m $0.10 options were well in the money... a 20 million dollar war chest if you don't mind, that Management would quite reasonably have expected to arrive, to help them keep the campaign chugging along.
At some time it seems however, it was recognised the war chest was buried too deep, and unlikely to ever see the light of day. Some would say that understanding was recognised too late, leaving very little negotiating leverage when they finally went threadbare and cap in hand to market.

Of course by then too, Li charts, which had been bearish all year, had just struggled through their worst monthly %'age drop.
And AVZ then, through no real fault of their own other than perhaps a lack of foresight, found themselves stuck, smack bang in a perfect storm.

Subsequently, and unsurprisingly, it seems very little institutional interest was roused, and hence we saw the arrival of the SPP. The money just had to happen, didn't it...? Insolvency was already knocking at the door.
Patto's would have been all over that, and of course very happy to underwrite any shortfall. And why not another (up to) 5 million bucks worth for our friends too, just in case the SPP falls flat?

"Oh, and we would like to write our own SP tickets too, if you don't mind", they decided.

And so it came to pass the the ASX granted the Company a waiver as they sometimes do...allowing it to issue as many shares as it needed, (up to a maximum 30% of the SOI, and without shareholder approval), to ensure the Company's short term funding issues were expedited.

That's where AVZ is on that front, IMO.

So what is the nadir here? Is there a point where the SP reflects a level of risk as low as any ASX speccie can reasonably have? An entry point shielded in this case by monies stumped up by Patto's & co?
Hmmm... and is it a 5 or 10 million dollar question?

Forgetting for the moment the Top -Up placement, it has been announced the SPP is to raise up to $10 m. Naturally enough, many astute shareholders will uptake their quota. And why wouldn't you, if you could?
How often is retail given the exact same opportunity to participate in a CR as a broker. And in particular a CR struck as the one was here... to be given the chance to piggyback on 100% of the benefits a broker is able to manufacture for themselves...Wow!

So, to my mind, Paterson's best outcome is to collect the full $5m themselves, as Underwriter. "Nup, no retail uptake at all suits us thanks".., leaving them to 'facilitate' the other $5m to their mates more Sophisticated Investors.

We know the the ASX's 7.1 relaxaytion in play here, up to a maximum 564 million shares can be issued by the SPP/Underwritten portion of the CR.
In theory then, if they had the tools, if they effectively underwrote the full $5m, and if they were happy enough to give the middle finger to their Sophs, Paterson could drop the SP to a 5 day VWAP of $0.11.

And yes, it is a scary number, but that is the number that gives Patto's their best monetary outcome. Not the Company's mind you, not you the shareholder, just Patto's.

My quick calc's indicate 566m odd is the maximum number of shares that can be issued.

• 1,888,460,000 x 30% = 566,538,000 x $0.011 = $6.231.918 x 80% = $4,985,534

That is the distasteful number that gives everyone (except Pattos) the absolute worst outcome.

Won't happen of course. And i would think a good portion of the $10m SPP raise will be taken up by existing shareholders. I don't know, say $7m? Anything above $5m is a good thing. That takes Patto's out of play as an Underwriter, and gives the SP it's best chance at an organic recovery IMO.

The elephant in the room for me as a potential investor, is Paterson's role as Lead Manager here. Their window of visibility into the uptake is open for quite a while (fully the next 2 weeks). They would have good levels of understanding around how these SPP uptakes progress, and roughly what the final dynamic mix of the 3 potential participants (SPP/Underwriter/Sophs) will look like.

And that is good knowledge to have. I believe that information (which no-one here has access to), will be a large determiner of the share price leading into when the bookbuild is closed.

So, to answer my own question on where the SP will be come end of Feb?
Well, somewhere north of $0.011  

And of course Huayou's options are just 8 weeks behind all this... Could it be the rollercoaster rider of the year, if that exercise were to somehow get over the line? Who knows. All i know is if it did happen, everyone here would be a lot happier...

And there'd be a party at Patto's.

IMO