Truly an insightful webcast by Tony and Adam – a lot of info...

Truly an insightful webcast by Tony and Adam – a lot of info (had to listen twice to understood some of the technical stuff… may do a 3^rd or 4^th listen to fully digest it).

I would like to focus my thoughts on the $300m Debt Facility – mind you, I don’t mind debt if we’re able to fetch a higher price for our product once in production. In a low price environment , kinda reminds me of Altura… it can make or break a Company. I would have rather they not went with a debt facility but given the current environment, a capital raise would not be beneficial to shareholders. Bravo for the capital raise at $1.65.

So how good is this debt facility? (Have a cuppa before diving in…)

Given my familiarity with debt; The debt facility provided by Ford to LTR (LRL Pty Ltd) is very good at face value (given not all info was disclosed) - this is coming from someone who works for a listed investment company that focuses on acquisitions and managing commercial properties; raising funds from the public (institutional, sophisticated investors and the general public) and balance of it with, yes; debt.

As Tony had pointed out in his webcast, the terms are indeed very similar to what you will find for (commercial) properties with a 45% to 55% leverage; Margin + BBSW being the norm.

Unlike the mining industry, real estate are considered low-risk - to obtain a debt facility with similar material terms is pretty impressive (without info on the nitty gritty stuff) – not sure how others in the industry compares.

The only difference here to a property, where a (physical) property is used as a security for the debt, iIn this case – its the Kathleen Valley project and shares in the borrower; LRL Pty Ltd. There's no info as to what extend but my guess is it is likely similar to a property – based on the extractable value of the property in this case; the project and shares if it was put out on the market for sale, Ford will have priority amongst creditors.

Looking at LTR's planned spending strategy for the next 2 year, they are highly likely to spend their existing cash before calling up the debt facility (see conditions to draw down above); this could be early-mid 2023 with reference to their project milestones.

I've prepared a conservative loan schedule (interest and repayment) - this is only my assumption and by no means would reflect reality as we all know if price remains where it is now at the moment; the loan could be paid off in less than a year should there be no other commitment other than to preserve cash for working capital; approx. $147m ($93m + $54m (1st Yr of operation) from the illustration above).

Their planned spent out of the $300m debt facility is $219m leaving $81m as buffer. I went with $240m leaving $60m as buffer in my schedule with production commencing June 2025 quarter (instead of 1^st of July 2024) as this is a five years loan (20 quarters); I expect the loan to conclude by the time we progress to Stage 2 of LTR’s masterplan.

In my forecast above; the BBSW rate were highly assumed by me using info provided by ASX and will likely be off the mark; given we will likely see higher interest rate environment in the coming periods maybe for the next 1 or 2 years. I believe the RBA aims to escalate interest rates quickly and slowly back off the pedal should inflation rate comes into the range of their expectation.

The other reason (I believe) they went with a $300m debt facility is to allow some buffer should something unexpected cropped up as well as to take into consideration of the capitalised interest. In my estimate; I'm expecting $60.4m interest incurred/paid at the end of the debt facility with an interest rate averaging at 4.9337% (highly dependant on how the RBA plays it).

For reference, the BBSW is obtainable from ASX:

How good is the debt facility; say compared to PLS’s USD Syndicated Debt Facility?

Working with minimal info provided by PLS’s March 2022 Qtr Report and Half Year Ending Dec 2022 (assuming all in AUD); The Debt as at Dec 2022 totalled $171.32m and $25.1m was repaid in the March 2022 Qtr with a $1.8m interest paid during the same quarter.

The rate roughly works out to be 5%:

This is debatable as I did not factor in the timing of repayment nor did I took into account if the loan repayment was a lump sum payment or if it was a periodic payment.

More importantly to us as shareholders, the impact on the project's ability to generate After-Tax FCF impact is

minimal (Original Post #59678249) as I have factored in some loan & interest payments ($121m + interest) with elevated production/transport costs.

Given we now have a clearer picture of LTR's structure and its off take customers and after Tony’s & Adam’s webcast; I've updated my previous illustration showing how LTR is likely to progress from Stage 1 to Stage 2:

As Tony had mentioned, the priority is still Kathleen Valley - getting closer to "official" production should (in theory) see material re-rate to LTR’s share price.

2 years may sound like a long time but know that a lot is happening on the ground as we understood from the webcast and the DFS – this include work (mining) on the open-pit for stockpiling before production (ore processing).