@zogI see two separate issues here: the first is how much longer SLX can keep going for, without a capital injection and without any revenue other than the IQE royalty, the second is what the Company’s actual liquidation value would be at any given point in time.
I think we are in about the same ballpark my view is that SLX will have about $30m in assets (including IQE shares) at end 2019Assuming a cash burn rate of 5m$ pa, and looking at SLX
as a going concern, I see 23.6m$ (cash) + 11.3m$ (IQE shares) = 34.9m$ in liquid assets as of December 31st 2019; so, there is enough cash to keep SLX going for at least another five years from today (but likely even longer, once the IQE royalty stream is factored in) without even touching the IQE shares.
with $10m liabilities for redundancies etc, whilst you feel its $24m + IQE shares but you still need to subtract the accrued liabilities for which I am probably pessimisticIf you are looking at an actual liquidation scenario, you need to take into account that more than 40% of the staff at Lucas Heights have already been let go (see page 8 of the 2018 Financial Report), and the impact of the corresponding redundancy costs was
already included in the 29m$ cash figure at November 30th 2018.
My estimate is that those redundancy costs were in the region of 1.0-1.5m$ (we should have confirmation of that in the half-year result next month), and therefore additional redundancy costs in a liquidation should not exceed 2m$.
Non-cancellable operating leases amount to only 0.5m$ (see page 49 of the 2018 Financial Report), so the total of expected redundancy costs and lease commitments should be within 2.5m$. My understanding is that there are no outstanding liabilities towards GLE, so yes, 10m$ for accrued liabilities upon liquidation looks way too pessimistic to me.
When it comes to the possibility of monetising the present value of the IQE royalty stream, what I would argue is that 1) It is unlikely that IQE would ever pay SLX much more than the PV of the minimum guaranteed payments, or factor in any meaningful future growth (why would they, when the underlying is unobservable?), and 2) such a discussion with IQE should be entertained well in advance of a hypothetical liquidation (as SLX would be very unlikely to get anything else than a bad deal by that time).
SLX has to hope that stable isotopes (with government money) and IQE royalties will fill the gap and that GLE stays in business after being restructured with a commercially bankable commitment with the DoE over Paducah tails in a commercially viable uranium market - it's a significant risk!!Yes, those are indeed (from what I can see) the conditions for any substantial value to be unlocked here, and yes it is a significant risk, which is why SLX is currently trading some 30% below its net liquid asset value.
My personal perception is that chances of the uranium market coming back enough to make Paducah commercially attractive
are good, so I can see why Management want to stick with the GLE setup (especially if selling the LIS IP to a third party outside the US is not an option).
If it turns out that GLE cannot be restructured, and that any other possible applications of LIS (such as stable isotopes) do not have the potential to make SLX self-sustaining, then conceivably it will be time to start talking about returning capital to shareholders (as it will be in their best interest).
With regard to the possible restructure of GLE, what I would also say is that, with the NEIMA act now signed into law, and assuming a DOE participation in the Paducah project funding, there could be a point when taking up the whole 76% of GLE (or anything between 51% and 76%, if Cameco are happy to increase their stake) would make sense again, if the uranium market is strong enough.
Just my thoughts.
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