I'm as amused at the current share price as anyone. Have been one of those +100k holders for a few years. No plans to stop accumulating/holding. Last purchase was 10k shares last week after the drop - thought it was a steal. I did sell down about 30k shares this time last year, but well and truly purchased back the numbers last year.
have been saying blind freddy can see the play, and I think the past few days shines some light on it. Though I still believe the short play that is in front of us wont eventuate and we will see a re-rate when contracts are signed (offtakes or project level financing or corporate bonds/markets). The experience of the Board and having JPM as an advisor would have seen this miles away. Would be astonished if they let value be destroyed in this way - just need to play chess.
Short hypothesis: Short and hold position open until large capital raising is called. Take full allotment and return shares. The market has formed the view that GXY need to raise significant development capital to bring online SDV, JB and downstream plays (Canada converter and LPD development phases). Post peak sentiment and low transparency sector means no immediate pricing pressure. GXY hasn't done anything substantial to clear this view. It has incited it further through lack of direction. Finally, GXY current Board has an aversion to debt financing off the back of corporate memory.
note: this isn't my opinion. It is a hypothesis to test - feel free to tear it apart.
pretty smart move, but the chess game I think is being played out is even smarter.
First, to the CR hypothesis. It would take ~80mn USD cap raising for the full amount of outstanding borrowed / shorted shares to be sucked up at current prices. That's not at all aggressive when you take this view:
(Excuse the potato math, it's a public holiday)...James Bay and downstream converter ~600mn USd development capital required for a 40ktpa outfit, SDV 378Mn (say 300mn in outstanding dev capital) for a 25ktpa outfit). Meaning about 900mn - not including any plays from LPD or MtC. Now take current cash (300mn) and next three year future free cash and receivables (say conservatively 80mn x3 + 30mn receivables) and subtract it from capex requirements gives a deficit of say 360Mn. Let's round to 400Mn for other unknowns.
To put that into perspective: shorts need 80mn to fully cover the 17 odd %. These are most likely the ones who have access to management via investor roadshows and had been given the delivery plan for assets on a plate two years or so ago. Back in 2017, some 61mn AUD was raised via private placement for development of SDV and JB - sadly I didn't get a look in but FYI the placement price was ~3$ AUD. Martin, The Chair, recently stated by that there would be 100k LCE from existing projects alone - confirming a significant investment profile ahead. A funding pathway through JPM strategic investor process 'seemingly' closed down. Every negotiator worth their grain of salt knows their walk away point. Sometimes wonderful things happen when you walk away from the negotiating table. Bidders winners curse is definitely not a way to add value. Great job I say. Confidence that a deal didn't need to be done unless it was value to shareholders.
the reasons I don't think this capital raise ebabling shorts to close will eventuate are as follows:
There are multiple pathways to bridge that number of 400mn USD
1) exisiting revolving debt facility with BNP - Tse stated in 2017 they were looking to 'build a long term relationship with BNP to support their growth strategy'. Facility stated at 15mn USD, no reason this wouldn't materially increase given long term binding offtakes at MtC. 15mn doesn't sound very long term to me, particularly given the 'growth' they've been anticipating. Previous debt facilities with BNP were 40mn, when the company had a substantially weaker balance sheet and no recent ack record of operations at a hard rock mine site.
2) Binding long term offtakes with pre payments and or corporate debt facilities to secure supply e.g. the 75mn USD from Greatwall to ASX.PLS (50mn debt facility and 25mn pre-payment). We are talking 65k-90k LCE here....that's 780mn to 1080mn revenue per annum at 12kpta of carbonate/hydroxide/other products
3) project level financing - sell down 20-49% of one asset. E.g. SdV has a project NPV of 1.41b USD, even 800m using 10kpt pricing. It would be closer to 1.47bn and 870mn if you strip out sunk capex to date. Also, albeit under different pricing conditions SDV north sale price of 280mn for tenements that have <1/2 proven/probable south development site.
3) corporate bonds / bonds market is prime for this kind of investment in a low interest environment. PLS has a route via nordic bonds for e.g.
4) a private equity placement with just downstream customers who have no declared shares loaned / short positions. Would create a firestorm but it has been done on the Australian market before. CBA did it on a 5bn AUD raise.
These are just the straightforward/obvious ones before I run out of steam.
I have an appreciation of why GXY hasn't been playing a transparent game of chess. Bloody frustrating though. Why not put out the DFS for James bay? It should have been ready early 2018. Why not release customers for Mt C? Why not talk about European supply from James Bay - It has to be there. Could the JPM process have been drawn out to frustrate a take over offer? Deals of this size can be done in a few weeks for project financing / months for IP sharing - not a year. If GXY knew they needed cash, they could have called it a year ago - esp if its engagement with the market saw a short term declining market placing them in an unfavourable position. To say they wouldn't have known a year ago is a pretty preposterous statement. I doubt they are doing their financial and project modelling on the back of an envelope.
I suppose the hedgies think they have this one on a silver platter / in the bag. Don't see why GXY should help them cover / improve their positions.
Though, on the flip side, the large institutions invested would have to be in regular communication to have confidence that if this is indeed playing out, their risks are being taken on board. I can't see blackrock for e.g. sitting around twiddling its thumbs on this. The communication line is the frustrating bit for a retail holder. I've just been following the money and as long as our shareholding neighbours continue to be who they are, see no reason to panic. No intention to sell any time soon.
DYOR as always punters. I look forward to the retorts.
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