Been tossing up whether to post this, but might as well chuck it out there.
“Mortar helmet and bullet proof vest on – check”……….
Interesting why this has taken so long to finally come out, hmmm! It is also disappointing that it does not contain any modeling as promised. Perhaps it was a case of just get it out there, get the vote done and move on to next step??
Anyway:-
The deal itself is basically what we knew which has been discussed before.
I think the criticism of our independent directors is a little unfair.
I have tried before to elicit some discussion on what we would expect to give up in a “normal” totally arms length deal to a funding/equity partner?
Highly doubt it would be anything less than 50% of the IO tenements and not unusual for small exploration Companies to be diluted significantly more to get to production. It often seems a better option to be able to sell at a reasonable price rather than take the risks and dilution to production.
Of course for that to be worthwhile you need competitive interest!
So, taking all information at face value I can see how our independent Directors would view this deal as a way to get to production which is not unfair to minority holders (for want of a superior offer)
A major issue we have, of course, is past history and treatment of minority holders which has created a level of distrust that is hard to overcome.
For the sake of discussion, if we just open the possibility that the “basis” of the deal is not particularly unfair (notwithstanding the arguments and opinions on the BFS issue), the big issue is, how do we trust BBIG (Todd) who will be in control of our asset and infrastructure solution from watering down any return we may receive. The deal contains certain safeguards and conditions which in normal situations would appear acceptable, however I don’t have an answer to that and there is certainly risk, whoever is in control.
The reports do however, indicate very strongly that BBIG will not be the funder / equity partner and I think it well accepted that their Chinese partners will own most probably 50% of the total enterprise (plus provide some lucrative debt funding). It may help matters if we were privvy to the overall deal between BBIG and the Chinese
I think it is fairly obvious that Todd wouldn’t have the cash to fund this development anyway.
This has also been quite apparent why the control of PIOP has been crucial so it can be used to underpin the whole deal.
Does this mean that Todd will have some incentive to ensure that the return is maximized from the 40% of PIOP that FMS remain owners of??
I accept this point can be argued equally either way.
To me this is a conundrum.
I personally would like to see the ability to get some value from my shares sooner rather than later (far too long already) and do not particularly need to go mining to fill a void (whether with Todd or not).
If the deal were to be voted “for”, the question is would we see the market over time (after FID?) accept FMS is going to get a return from its major asset and place a more meaningful value to FMS shares? The answer is, it should (how much is the question) and I for one would most likely get out before we had to worry about the not insignificant risks moving to production.
Of course who knows what the market will do but if we assume that the Chinese value 50% of PIOP at approx $750m at FID (rough figures based on a 75/25% split and capital cost $3b) then why wouldn’t FMS MC be in the vicinity of $600m+ at Fid which should then increase as capital is expended and we progress to a working IO mine??
Naturally, nothing is as simple as that, however it does perhaps give a window into what we could expect? (purely hypothetical)
If we vote against the deal are we banking on Todd coming in with a sweetener to the offer or have they plan B ready to go?
Likely our Sp will collapse until we know the next move which I imagine would happen pretty quickly.
This is also a concern. I have always believed FMS should have raised working capital as they needed it rather than borrow from PIO. The PIO loans will be repaid from an equal opportunity rights issue which normally means the SP is largely irrelevant however if Sp collapses it will create significant anger and dismay and many minority holders will not take up their rights (as we have seen before) accelerating the ownership percentage of our major holder.
(It is apparent from the quarterly that the Company is still spending money at an enormous rate and a rights issue will be required asap to repay the PIO loans $10m and provide working capital!!)
It is also not unusual for the Chinese to play a long game however it seems these deals have been stitched up for some time, so what role are they playing here?!
Perhaps the next move would involve the Chinese stepping in directly (seems Todd may be limited in ready cash!), however I am still trying to work out what a deal like that would look like or mean to us.
I know even a suggestion that it is possible to vote for this deal is not acceptable to many however I think it deserves some meaningful discussions around the various points…………………
The above should not in any way be taken as advice to vote either way.
I for one will let it play out as long as it can and hopefully learn more as we go. Never know we might even get an indication from OCJ of their intentions…………..
(20min delay)