Thanks and including all those taking their time to read my lengthy post; I felt (including myself sometimes) we tend to let the market which influences the share price dictate our view of our investments which can be irrational at times.
Importantly, there is a need to understand not just the (long term) macro view and the underlying fundamentals that ultimately makes a company; A company that can (or will) generate growth and value for its shareholders in a socially beneficial way. TG's latest video highlighted this and just as he is a shareholder himself, he understands the concerns we shared. And it's what drives me to put my skills; learned over the course of my career to use - to understand what a Company is worth and the potential earnings it may be able to generate.
...So bear with me with another one as it may be reasonably heavy to take in; I'll try to keep it simple.
@dynofish, your initial statement is correct as long as the business is profitable, the covenants can be met easily. Your 2nd statement is also true; higher profit = higher likelihood of a higher dividend payout.
Let's just say the covenants are based on a consolidated basis and with reference to LTR's consolidated Balance Sheet as at 30th of June 2023 & illustrate what we can reasonably expect with a couple of assumption:
Without going into the details and what items are excluded from the ratio calculation and for simplicity's sake, t
he Debt Equity Ratio as at 30th of June 2023 is 25.62% (Total "Interest bearing loans and borrowings" divided by "Total Equity").
Taking a step further:Assumed if the loans from ECA and commercial lenders totalling $650 "Loans" are fully utilised after the this date + some corporate expenses:
Note: The Interest bearing loans and borrowings would increased by $535m ($650m - $115m) as it replaces the utilised Ford Facility.
As you may have already noticed; the DER under the debt funded only balance sheet is a shocking 147.82%, whereas adding the Equity in the mix - the DER is now just below 80%. From the lenders perspective, the higher it is, the riskier it is.
And let's hypothetically say these are the only conditions of the covenants in relation to its dividend payout policies:
1. LTR needs to maintain its Debt Equity Ratio below 60% at any given time.
2. LTR can only make dividends payments if after paying out, the Debt Equity Ratio remains below 55%
In both hypothetical scenarios, the DER is below 55% and more so if pricing is robust; allowing for more flexibility in relation to both dividend payout and loan repayment, and to undertake whatever expansion plans they have.
So, instead of paying out 20% of it's FCF as dividend, they can consider increasing it to 30% whilst having little impact on the DER (it would be still be under 40% if avg pricing is $4,500/t).
But note, opposite is also true, I don't anticipate any consideration for dividend payout if avg pricing is at or below $2,500/t.
I would also like to address a few posts (past & present) i noticed criticising the BOD's failure to estimate capex. Budgeting for capex is not easy especially in an inflationary environment exacerbate by lack of skilled labours/appropriate housing supply. We also have this issue in the commercial/retail industry where 80+% of our capex project (between $1m and $15m) at office/retail/large format retail building exceeded its initial budget but we were fortunate as we have the capital to bear the brunt.
We only have to look at the residential building sector to understand this, If we're having such high failure rate in the residential building sector, imagine how hard it would be for a single mining project which exceeds $300m in value (with significantly more moving parts).
Which also makes me wonder how hard it is now for other mining projects to now raise sufficient funds to execute their plan to production - not many explorers can achieve this scale and get to the stage where LTR is at and I see us as the lucky bunch having TG and the BOD taking us this far.
(20min delay)
