Hi Mercury, thanks for that. Anyway, as my original post has been modded I will try to re-word my question that I was hoping to get some discussion on. Hopefully in a manner that doesn't upset sensitivities.
So what I was hoping to get discussion on was why a project with a capital cost in its updated feasibility study of $28.77m appears to need funding in excess of $45m. The $45m being the gross notes raising proposed of $USD40m, $AUD 6m in listed options conversion , plus cash plus the recent bridging loan (haven't added in the equity from the put and call options).
So from
@Geeenius post we can see that the remaining capital costs are showing at $27.9m in the recent presentation. So there seems to have been a slight increase in the project capital costs, given about $Aud3m was raised for the early start program. So assuming most of that has already been spent we get about $30m as total project capex. So a small increase perhaps, but nothing significant.
So that now leaves me with trying to reconcile why they need funding of approx $USD45m if there is only $USD27m capital costs still to be incurred. A not insignificant difference of $18m on only a total $30m capital requirement.
So now to your insightful comment that they likely need to cover the loan repayments during project construction. That sound reasonable, so what are the likely loan repayments. I note from looking at other examples (eg the PLS loan that OZNT used as an example and also the AJM loan) that these agreements are usually structured to be interest only repayments in the early years, no actual loan repayment usually occurs.
So let's assume that's a two year period to get them to "commercial production status" , note for those with any sensitivities around timelines I am using the term commercial production for a reason, it's not the same a first production. So two years worth of interest needs to be added to that $30m capital cost. So let's use the PLS example that OZNT referenced, it had an interest rate of 12%, so if they are borrowing USD40m the interest on that will be about $USD4.8m per year or for the two year period about $9.6m. What the actual interest rate will be of course will depend on the raising, AJM was 14% and both those projects are in Australia, supposedly with a lower sovereign risk to Tanzania.
So if I am reading your post correctly we need to add that interest onto the $30m project capital cost as you seem to be saying it's not already included. So that would then give us a total project capital cost of roughly $40m. I say it's a capital cost as under Australian accounting standards all interest costs up until the time of "commercial production status " are capitalised against the project, not expensed.
So our "new" project capital cost appears to actually be in the vicinity of $40m and we have explained roughly half of that $18m difference. So still a difference of approx USD9m to explain. I believe some of it may be in the Investment bank fees, I doubt they did all that due diligence work over a number of months for nothing, so likely a flat fee for due diligence plus commission on however much they raise? I don't have any experience in Investment banking but gather they know how to charge, so just guessing a fee of around $1 or 2 million for due diligence then perhaps a 5% commission fee on the $40m raise , so perhaps $3 to $4m USD all up? Though happy to defer to any banking experts on the forum on that one. Also I believe these costs would also be capitalised against the project under accounting standards.
So that now bring our total project capital costs up to $43 to $44m.
Obviously these figures could be a few million out either way depending on interest rates or those loan fees/due diligence fees etc but funnily enough we are getting up near that $45m figure I was trying to work out why they needed so much funding.
It's interesting that a project with a $30m odd capital cost can end up with a total capital cost of $43 to $44m. Those capitalised interest costs and loan fees all seem to add up pretty quickly.
Anyway, all this is based on my understanding, of capitalised interest and loan fees. Happy to be corrected or hear other explainations on why so much funding is needed if people disagree with my comments.
Anyway, thanks to you and geeenius for input into the discussion, much appreciated.
(20min delay)