So an update wasn't released today..
Let's not be foolish to assume that if a deal for refinancing was finalised they would wait to release details prior to open on Monday Morning.
Time for the company to provide an update.
With multiple sources indicating ~AU$16m interest payment has fallen due another extension of suspension copy paste announcement will be inadequate.
The US$7.1m cash outflow to Ganfeng to clear prepayment in Dec Quarter more than outweighed the rights issue inflow.
If previous shipments to their other offtakers in H2 2019 took place as indicated, Ganfeng didn't receive enough shipments to clear the remaining prepayment. Only options were for Ganfeng to have taken more than 30% from Dec shipments or January shipment was included in repayment.
But that is neither here nor there right now financially speaking, just a curiosity as to quantities taken by the newly signed H2 2019 offtakers.
What is of importance is that the Ganfeng prepayment was not a secured debt and it would appear GF was eager to be repaid before such a rebate could be considered a preferential payment.
There was obvious brinksmanship at play when the Ikan Jenahar was on route and in port late December. It appears GF scrambled to fill majority of the bulk carrier with the PLS offspec ramp up stockpile that they are choosing to call SC5.5 - 5.5% Lithia, but who knows the level of impurities.
Figures adjusted for full repayment of GF debt would suggest with forecast and additional December Capex, COH at end of January should have ranged from AU$0-4m and now a third of the way into February an additional $4m will have been spent.
Of course in terms of cash flow, payment timing to creditors is of significant flexibility but if a company cannot reasonably expect to meet it's short term obligations it is insolvent.
I think it would be unreasonable, even though possibly acceptable under continuous disclosure obligations while a stock is in suspension, for AJM not to give a detailed update of its financial position and status of negotiations to refinance the existing ~US$143m notes. Now it should include the due interest payment taking it to approx US$154m (not fully taking into account any penalties for the further breach of EBITDA ratio covenant).
Let's not try to confuse the two issues of production and sales success with short term financial viability.
AJM has been a victim of poor timing at many crucial junctures. I'm sure that when the current notes were issued to finance construction of the operations nobody fully anticipated the extent of spodumene oversupply or even Li Chem oversupply and the subsequent fall in pricing. No doubt AJM would have planmed for refinancing upon reaching commercial production, but here we are.
It became clear late last year the preference became a new note offering and the Fitch Rating was commissioned but severely limited options. Perhaps it was a little harsh, but reality at the time was on an EBITDA level, AJM was pretty much breakeven, a little in front even. Cash flow wise the outlook was more bleak.
Word around town at the time of the current refinancing effort was the goal was a swift new note 'auction' to refinance the existing debt, but after transaction costs and a likely need to draw additional funds to cover at least 6 weeks working capital, on the back of a CCC+ credit rating, a reduction of even 2 or 3% may have been unachievable and still left the company in the situation of relying upon CRs to meet repayments that would have been of a similar scale due to larger debt level.
Perhaps this had left AJM the only palatable option of working with Azure to find replacement financiers of a similar nature to the original group or negotiate a new deal with existing holders to increase the debt level while negotiating for a reduction in rates.
Then as luck would have it the Coronavirus came into play further upsetting the applecart with questions regarding reliability of offtakes (Chinese State offering broad ranging force majeur certificates) amid pricing for spodumene that has continued to fall.
Ganfeng December payments for equivalent grade (SC6) from Mt Marion was approx US$50dmt below the AJM floor prices.
Outsiders do not know the extent of negotiations with Ganfeng regarding prepayment and whether the floor price has been renegotiated and even if AJM SC6 is 'Super SC6' I find it difficult to believe it would warrant continued significant mega premiums to other supply alternatives.
Most informed holders would understand the financial pressures faced by independent converters prior to Wuhan, however thread discussion has been shut down about breaking contracted floor pricing, but this force majeur situation adds to the complexity.
Now I believe that it has reached a stage where AJM needs to disclose to the market the nature of its financial position. It's Quarterly Report was severely lacking in this respect. No mention of Cash on Hand or sales pricing.
With that all said, I understand that I may be considered the most pessimistic of posters on AJM, however I do endeavour to provide reasoning and substantiate my financial reckoning. Some have confused my posts with an agenda to see the AJM SP plummet or in fact the company to fail. Nothing would make me sadder than to see another Australian lithium mine end up in VA or ultimately foreign hands with an outcome that sees the retail holders that funded and supported construction and ramp up of the asset lose out.
What I was disappointed to see was posters offering genuine, real world achievable solutions that would allow holders to prosper in the long term being shouted down while those providing fantastical best case scenarios being celebrated.
I am talking in this instance of
@Egeria.
One thing seems quite apparent and that is for AJM to prosper without continual dilution and loss of shareholder value the level of debt needs to be reduced to a total that is sustainable without the need for large CRs.
If you look at AJM from the perspective of Enterprise Value, you will see that while AJM has a market cap of AU$156m, I calculate it's EV currently at approx AU$386m.
Consider the opportunity that AJM would have if an equity dilution of 60% were to occur and debt were to be reduced to AU$60m with AU$30m raised for working capital
All things being equal, this would result in a market cap of $390m with $60m in notes or another form of debt and $30m cash injected resulting in an EV of $420m (Need to assume Azure and the bankers would get their fill on the way).
$60m in debt would open the door to much lower interest rates and even the possibility of dealing with major banks for financing. At even 8% interest this would be less than AU$5m pa and likely achievable from operational cash flow. The possibility of repaying the Principal opens up along with many other options like a Stage 2 when it is most beneficial to the company.
Similar Enterprise Value, but a more financially robust entity.
This is just one of many debt for equity scenarios that I am sure others would be open to speculate upon if they weren't shouted down.
Will be interesting if AJM chooses to continue the line of finalising refinancing to extend suspension again or properly update the market and disclose the reality of the situation.
Hopefully a positive outcome is achieved before it is out of the hands of the BOD. I fear it may have been left too late.
Time will tell.
note: Apologies for not telling holders what they want to hear. I simply provide genuine opinions. Feel free to dismiss or even block me if you disagree but I implore you to not engage in personal attacks. Personal attacks limit free discussion and dissuade others from sharing their perspectives. It may be satisfying to attack me, but remember it will make others think twice before sharing their own information.
