CXO - The next (and nearest) lithium producer, page-4

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Crisis77

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10/08/21

10:10

Post #: 55161824
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Originally posted by tacair: ↑

It has been quite a week. We have seen management release a full funding package for the mine with consists of:
1. a fully underwritten placement to raise 91m,
2. a binding off take with Ganfeng for 75ktpa over 4 years and an equity investment of 34m (this is awesome), and
3. a 15m SPP for shareholders

All up this will add approximately 442.5m share to the register taking us to about 1.65b shares. Originally management were looking at a mix of equity and debt, but clearly they have decided on an all equity solution. Having an all equity solution does provide the advantage that CXO will not be covered by any debt covenants for interest repayments which means a lot more flexibility and further de-risking because we do not need to answer to any financiers - we already have the royalty payment to LRC so interest on top wouldn't have been great. The dilution should in theory mean that we should discount our previous SP predictions by approximately 30% (perhaps somewhere between 90c and $1.10 as a guesstimate when producing), but in this market, who knows!

A couple of observations:
1. 1.6b shares is reasonable for a producer, especially as there isn't likely going to be a need to raise for anything else in the foreseeable future.
2. After all is said and done, CXO should have a fully funded mine and approximately 70m in the bank. I found it curious that the offtake prepayment wasn't used to offset the size of the CR, but management must have a plan for the additional cash. I note in the announcement they state that they "significant financial flexibility.......to assess a range of options for future growth opportunities".
3. We have committed approximately 80% of our output now, and while this will potentially limit our ability to access spot pricing, we could use the remaining 20% for this purpose or management could sign another off take. We have now brought on board two tier 1 customers and I would only hope that if we add a third it is of the same calibre - something tells me it will be.
4. We have traditionally seen CXO's SP drop to the CR price, but I think this time will be different. We are now a legitimate producer and we should be valued as such. It also means that we are now 12 months away from a revenue stream, so if the market corrects, CXO should be spared (relatively) because we produce an income and have no debt - this is excellent for ongoing operations and us as shareholders.
5. There isn't a heap of overhead resistance yet (as of the time of writing), so we could see the SP move quite quickly.
6. FID is a given
7. We have drilling results on the way and every one that is positive will add to the SP because it means more profit!
8. I am excited to see how management plans to explore the future growth opportunities.

I would love management to hold another webinar as I would really like to understand the reason for the all equity solution - I think it will work out well for CXO but I would like to understand the rationale. Perhaps debt markets had terms that were too restrictive or interest terms that were too high or maybe customers wanted a too low price floor for prepayments? I'm sure there are a myriad of reasons, but it would be good to know.

GLTA - our time is now.

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Great analysis.

Just need that monster find and we can genuinely launch into orbit.

CXO Price at posting: 36.0¢ Sentiment: Hold Disclosure: Held
4 Upvote

0 Great analysis

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(20min delay)
Last 11.0¢		Change 0.000(0.00%)		Mkt cap ! $235.7M

Open	High	Low	Value	Volume
10.5¢	11.0¢	10.5¢	$334.1K	3.123M

Buyers (Bids)

No.	Vol.	Price($)
17	1792799	10.5¢

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Price($)	Vol.	No.
11.0¢	1147149	22

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No.	Vol.	Price($)
16	1782799	0.105
54	5857630	0.100
5	251881	0.099
5	204168	0.098
6	602564	0.097

Price($)	Vol.	No.
0.110	1147149	22
0.115	1568205	27
0.120	3358539	53
0.125	1761474	22
0.130	1559083	29

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CXO - The next (and nearest) lithium producer, page-4

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