Christem, what has happened is unusual but not unprecendented (banks are never on the hook for liability for saying no up til signing). My understanding is that it wasn't just pricing that was unacceptable, but a bunch of other covenants. The suggestion is that one or two members of the club pushed particularly hard and the other just acquiesced. Not unusual, there's always a bit of group-think in these things.
So I understand that meaningful negotiations are underway with various members separately to see if the less rigid members can be warmed-up to an acceptable extent, but that negotiations with customers and other parties are more highly prioritised. I probed yesterday for detail on who they're talking to but understandably the responses were general. Hopefully it includes the major commodity houses (although they're pretty rapacious when it comes to pricing). Inevitably they will (hopefully) be leveraged against each other.
Declining an offer is a big step, not taken lightly, even if the terms are egregious. So they are rolling the dice and hoping for a combination of a few of the following; 1 enough customer support to make reasonable headway on construction, 2 a few of the syndicate coming up with an improved offer and 3 improved sentiment towards coal (hopefully later in the year). Re the latter point, the company confirmed yesterday that the longterm forecasts prepared by the consultants were above current prices. Realistically, finding other banks will be difficult mainly due to SA risk.
My assumption is that they must have a reasonable basis for thinking there's enough funding out there to keep them going or they wouldn't have said no. If all the planets align it would be theoretically better raising debt later in the construction program when they've illustrated lower capex and no slippage on timing/budget etc (they can't afford timing slippages or the customer contracts are at risk), but I have to say it's a ballsy call. I suspect they can cut capex via leasing alternatives for the yellowgoods etc (CAT, GE etc). An op lease etc would be easily do-able for much of it. So decent capex savings should be available I am (still) trusting management but they now have a harder job to do, as some of the gloating posters (accurately) pointed out yesterday. And there is now further uncertainty about milestones which isn't great. But on the other hand the resource remains a standout (even if it's in SA) and is well-progressed and management are capable (and very exposed). So whilst I'm disappointed and quite surprised I'm holding (bought a bit more but have too many).
RES Price at posting:
26.5¢ Sentiment: Buy Disclosure: Held
