I'll re-post what I think is going on in simple form to clarify the situation as I see it.
ESS know the SS results long ago as they knew the MRE long before releasing. Maybe they delayed the MRE release one month for tactical purposes, maybe to bookend it closer to the SS release. The market is usually woefully late to be informed. Cost inflation would have hit Dome Nth like all other projects, together with the smaller MRE was going to mean a less profitable project on whatever spod price you plug in.
Surely management knew that selling a smallish, high grade spod project with good recoveries to an existing player was the value generating outcome for all. Raising big equity at low share prices for juniors is no fun and almost a guarantee of transferring value from loyal LT holders to new broker clients at the bottom. The spreadsheets look OK, but reality is it can be a long and unprofitable ride for old holders into an uncertain mine build and future pricing environment. Bird in the hand...
How to shake out a bid before brokers and suitors push shares into the basement and holders into disillusioned capitulation? Either a TO of CR at very low prices is a killer to existing holders, and without a TO offer on the table it's usually all downhill. So they look to sign an off-take agreement including some funding to help minimise dilution while raising the required development equity. Critically, if ESS sign away the rights to Nth Dome spod then any TO suitor is stuffed. That is the easiest way to pressure a TO suitor to make a move... just asking nicely won;t cut it.
That explained to me why ESS seemed to be dragging their ass with the MRE, SS and infill drilling, instead pushing hard for off-take negotiations. It was the obvious way to shake out any bidders, before the deposit gets locked up. Job done, bidder has moved.
Accepting 50c at this stage is just a minimum price to start the ball rolling. Not ideal with a no-shop clause, but then Tianqi is manoeuvring to give themselves the best advantage of picking up ESS cheap as they can. Management is not saying they are only worth 50c, just that without a bidding war they will struggle to deliver risked and time-discounted value higher than 50c with the equity raise DIY development route. Management have been working on the SS all year, sounding out off-take partners, funding options etc... they know better than anyone how the project stands.
So management get an offer from a second suitor that's not Min Res. They know Min Res is interested, spent a month negotiating and contemplating synergies with Min Res during the initial TO talks last year. That Tianqi is willing to lock in 50c is worth more than Min Res offering 50c, because the board know they now have two interested parties and competitive tension. If Min Res offered 50c over Xmas, the board wouldn't be sure if there was another interest buyer and thus any competition to find a fair market price, with Tianqi they do.
If there are no competing bids, management know they weren't worth enough above 50c to make it worth Min Res effort to fight for it. They know what it is worth to shareholders after dilution, risk, time and various price deck scenarios. If Min Res compete, they know upside from 50c is certain and shareholders are a winner.
I'm stoked management are thinking value generation for shareholders, not empire building to pay themselves ever higher packages over years as they 'go it alone'. Seen it before way too often. In terms of individual management value generation, picking up $1M annually to go it alone plus shares upside usually trumps accepting a TO price with the rest of shareholders and walking away.
If Dome Nth is worth as much as the bulls here think, there will be a bidding war with Min Res and a higher priced outcome. If not, then management is telling us 50c in the hand is a fair worst case outcome. Management really couldn't treat this TO offer any differently accept haggle for a higher floor price. For all we know, they already have and 50c was the best they could get. I'm happy with 50c floor to flush out Min Res and let market forces tell us what Dome Nth is worth...
Could happen quickly, could take some time before MIN moves, or nothing eventuates. I'm betting MIN will have a crack, at 47.5c market is betting probably not. An interesting set-up...
Expand
