Out of some bloody minded refusal to sell everything including my oppies this last run I'm still holding, so it doesn't make sense to lift my skirt, but here are my thoughts anyway. Behind the scenes they might actually have third party interest in some sort of M&A to bail us out of the venus fly trap. That outcome makes sense and could happen any time, though price action is saying nothing doing right now. I got in high teens after the 2018 DFS release. Had a number of calls with then CEO AJ, asking the hard questions about the risks and uncertainties someone like myslf does.
Large amount of Inferred Resources included in DFS not actually Reserves.
Not that I don;t belive they will prove up and be there, just that banks etc will generally not lend on Inferred Resource production. No prblem at all says AJ, there is more than enough Proven/Probable Reserves in the open pit and early u/g to cover bank repayment years so the bonus Inferred Res tonnes is just a bonus. We can't move those tonnes to Reserves because can't get access for the required drilling.
Turns out that the banks woudn't/didn't lend against the smaller Reserves partly because the Inferred res were excluded. This from a conversastion with Max I think but back in 2019, anyhow there are no doubt multiple reasons banks were reticent to get involved including the royal commisson and some spectacular gold development failures (eg Gascgoyne). This thesis is also backed by VXR releases and AJ describing the $100M Trafigura debt as "short term" with penalty free repayment options as soon as banks could be brought in to replcae that debt. They always contemplated banks replacing Traf as soon as the risk was redused enough for them, probably including upgrading Inferred resources.
This makes sense also because you wouldn;y normally expect the off-take partner to provide the finance. Not just is that $100m lighter than I hoped, it was Senior Secured, which is usually reserved for the bank compnent of a finance package. Usual practice is for banks et al to stump up the big chunk of senior debt, then 'sell' the valuable off-take rights in return for extra 'subordinate' debt/equity sweetner. It turns out all VXR could get as a sweetner out of Traf for the valuable off-take rights was the actual senior debtas a stop gap measure. Trouble is, n the absense of extra off-take partner equity/debt in the mix, that leaves VXR further under an already high equity funding hurdle. Strike 1.
Capex Blow-out
Another dirty industry secret is that finaciers have independent experts go through the DFS like a doose of salts to make sure lenders are not taking on more risk than they bargian for in excessively optomistic DFS assumptions (god forbid). For eample only, independent experts might conclude that the more reasonable capex and working capital required over a longer than DFS assumed ramp up time frame requires an extra say $50M than was factored into the glossy DFS. Not a 'fatal flaw' of course, and thus a company can say hand on heart "there is no fata flaw" but behind the scenes certainly it burns like hell.
So AJ leaves late 2019 not long after the $100M Traf finance is annouced and, I assume, he sees writing on the wall that he just can't get SS funded despite his valiant efforts and leaves. The EPA debacle wasn;t constructive but i never thought that final delay alone was cause to walk. It certainly was great cover if one wanted to walk. This speculation woldn;t have much legs maybe except 6 months later out of nowhere, VXR annuonce they have re-run the capex numbers and it's increased $40m... thats +25% on the DFS if you don;t mind....
I won't get into the excuses or shuffling cost buckets from 2018 DFS so nobody can actually work out exactly where the extra costs come from, bottom line is capex is up big. That means possibly an extra $40m cash equity VXR have to stump up, which already looked a bloody high at ~$100m including all the working cap, extra contingencies, loan fees etc required ontop what the DFS contemplates. Read the surprise and uinexplicable capex increase release, throw up in your mouth a little, then put in the bottom draw because AJ leaving, he EPA debacle, covid and probably selling the rumour have already priced in this inconvenient reality. Strike 2
Huge diluting CR at Bottom of the Market
Having refused to dilute at much higher levels and instead run on fumes and NST loans "untilt we get the project funding sorted" of course the market forces management to capitulate at the bottom... not just for 5c but with a 1:2 free 10c oppie. A previously fairly tightly held stock is now swimming in weak hands sitting on great profits and still oppy upside from 10c.... why the selling you ask lol. The modest money raised went into the annual drilling pilgramage where a no dount very good and well meaning geo consultant convinces the finance type board memebers to have another crack for the umpteenth time. Each campaigne it seems ends with a directors special into that skinny little Breakers GH shoot to try and cover up for the utter lack of success elsewhere... harsh maybe but imo. Money burns quickly in juniors, cash runs down and the spectre of another CR looms larger as the comapny essentially sits idle as a painted boat waiting for some M&A fairy to kiss them on the ass. Strike 3
Of course the attraction of this value trap is the SS deposit into a potential base metals boom. At higher prices it will cover the caope blowout and more, perhaos even attracting that long hoped for M&A saviour. The trouble 'good assets' waiting on the next boom and incentive pricing to be developed is of course dilution to pay the bills, including a decent living for excecutive management for some of which VXR has becine a career. Nothing wrong with that and no other choice, junior companies chew their own face off to the tune of abiut $2M annualy unless you do nothing out of a post box.
Maybe the above is a little jaundice, certainly jaded. I not hurting in the back pocket, but my pride was dented at re-learning lessons form years ago about seeking confirmation bias from management. I would never have been in this if the DFS cape was $40M higher but maybe they genuinely thought the DFS figure was rock solid. Owners usually get confirmation bias rose coloured glasses about thier own children right. It's just one of the risks to consider investing in junior developers... one of many.
Are all of my concerns priced in at 10c considering the confience in a world commoidty boom this decade, especuially includung copper? I honestly have no firm opinion, but 5c looks too cheap and 15c looked too expensive so 10c is probably about right. Management are not going to fund SS with a CR, will dilute us the the SH. They need to get NST on board with some other company who has the balance sheet and bullish price expectatuions to take out the long suffering with some value before we grind down to another share reconstruction. I won't be looking any M&A gift horse inthe mouth that's for sure.
The above is my own opinions for discussion pruposes only, DYOR and don;t take me too seruously.... everyone on HC posts with an agenda they tell me.
Good luck
VXR Price at posting:
10.0¢ Sentiment: None Disclosure: Held
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