Ann: Corporate Debt Refinancing, page-20

Perhaps I’m getting all Professor Langdon here, but upon careful reading of the announcement I reckon they’re hinting that the debt probably won’t be around for long – why else include the sentence:

“upon full repayment of the facility, the Company will provide to OCP an agreed hurdle rate of return which is inclusive of the interest paid, as well as any gain in value of the Galaxy shares issued in satisfaction of the facility fee”

If I was a debt provider, I wouldn’t be giving away a concession that is effectively saying “if my fee shares, which is my upside to this (risky) deal, go up in value, you can pay me back less than the face value on my debt”. I think it’s both an acknowledgement that the upfront fee shares are being issued on the cheap (20 day VWAP is ~8c) relative to intrinsic value, and that GXY will pay out this debt when they announce a funding deal on Sal de Vida. I think it should be viewed as bridge financing, and more favourably than it has been by some on this forum.

Looking ahead, SdV requires an upfront capex cost for Phase I of US$120m. If it’s 60% debt funded, GXY still requires an equity ticket of US$48m. So if GXY sells down say 40% for US$50m, they would need to put US$28.8m of that towards their 60% share of the project funding, but could use the remaining US$21.2m (~A$30m) to pay down the new debt.

If that all sounds fanciful, then also consider the fact that SdV probably can’t be financed at all if OCP retains security over the company’s assets. I think the market missed a trick with this announcement.