Hi
@reallyray. Good question, thanks. I have nothing against capital raises or necessary dilution of a company's register. There were three very clear reasons why I was bullish on Galan's $50M capital raise (and look at the share price performance since it was undertaken; you mention a 10% discount, but on a 15-day VWAP basis the discount was just 1.0%). To avoid cross-promotion, I have answered your question on the Galan threads, you can find it here:
https://hotcopper.com.au/posts/58477737/singleAs for the rest of your question, to be completely even-handed I acknowledge I'm no project finance expert, so my comments on these threads are just my opinion - and presented as such. But it is an area that keenly interests me, because in my opinion it is
the critical step between being a junior hopeful with a huge deposit (of which there are multitudes on the ASX) and
actually becoming a producing entity. Funding is the single most critical hurdle between those stages, so getting it right is critical to both the shareholders, and other future finance partners (they will carefully evaluate who else your company has got on board). To avoid re-writing stuff, you can see the different options I outlined in the MGT post I referred to earlier (equity raises, bank debt, bond issuance, government support, or a combination). I've also gone into it on a post on the SRL forum - another classic example of a small cap sitting on a huge resource, with an eye-watering amount of capex required to ever get it into production. That's here:
https://hotcopper.com.au/posts/57001986/singleSo my brief response is I simply don't know how these microcap resource players are supposed to access funding worth multiples of their market cap, especially where capex is in the billions, sometimes >10x the company market cap. No matter how strong the 'story' is, what lender is going to expose themselves to that risk? To me unfortunately the HIO deal encapsulates that - to get just $200M they've had to give away a lot - and it's just a fraction of the anticipated future capex.
But you raise a fair point - how else could they do it? They're too far away from production to be able to get say a 5-year bond done (and be able to pay back the +10% interest each year). A big equity raise would have been equally dilutive.
All I'm suggesting here is that I don't think this finance deal is anywhere near as good as other posters here are suggesting. If it's a necessary evil, so be it. But I wouldn't be dressing it up as
"wow, this is simply brilliant, best deal I've ever seen" etc. Based on my research to date, I think that's an unfair representation of the deal, especially to shareholders who might be newer to this game. It's probably wrong to judge the deal solely on yesterday's price action, given Regal are/were on the register, but I think you always need to be very cautious on a microcap when
apparently good news comes out, and the SP gets dumped (think MGT and their "positive PFS").
Cheers
m
(20min delay)