@11up The questions You've asked 2 different queries but I'll broadly collapse my answers, for simplicity:
Q1. Should most of the assets other than Collerina, including Cobar gold, be JV'd?
Q2. Should Helix do an offtake/tolling deal with CLL to use CLL's proposed plant?
Too early to say, and depends on deal parameters, whether to JV / offtake We of course need to know deal parameters, to assess whether any course of action would give shareholdera a better return than the status quo, or any other alternative. As we are just generalising, there can be no definitive answer. However because it's you who's asked and you're a supportive fellow shareholder, here are some quick thoughts, for what they're worth:
What's in it for me?? Generally, whether to JV (or toll ore) depends on many things.
The main reason to JV is usually to get $$$, when the terms of alternatives like cap. raisings are less attractive.
The main reason to toll is if it's cheaper and perhaps quicker to market the product after processing at someone else's facility than if you built your own plant. Early cash flows are highly prized, especially for previous explorers like us. Finally, a tolling or offtake agreement may give a better net result than selling ore unprocessed, if that was a possibility at all.
Assessment of alternatives is complex To illustrate a bit, some considerations are:
How much of any farmin money will be spent in the ground, and how much will be cash reimbursement of past costs? Cash is normally king and reimbursed cash could be attractive if equity markets were crap - but it could have negative tax consequences;
Asset swaps might be attractive if you believe that any acreage on offer has been under-appreciated by the other party. Assets also could include shares in another entity, such as a processing facility etc., or a combination of the above, and more.
Some JVs are highly prized Sometimes JVs are highly prized e.g. if you have a small profile and can introduce a high profile JV who, in addition to lots of cash, brings other benefits like:
new technical or marketing input e.g. when Kidman farmed out part of its equity to SQM;
marketing opportunities – e.g. when Toyota bought into Orocobre's Argentinian lithium acreage, and into Orocobre itself, or when Pilbara brought in Great Wall and Posco.
But JVs have disadvantages However, a JV is not all one-way traffic e.g.:
there' s lower reward going forward, because you've sold some of the interest;
you have less control over decision making, as there's some else who has to agree to future actions etc. (like being single -v- being married);
the JV might reduce (or sometimes increase) the possibility of a take-over bid from a 3rd party in future. (others may think you're completely out of the market... - speaking of being married )
In short, it depends on what an incoming party brings to the table, and how the swings and roundabouts stack up.
Generally, it's best to keep options open – and not farmout - until someone makes an offer that's too good to refuse!
An obvious example … If, say, an incoming JV:
is a competent explorer or otherwise well-regarded and good to deal with;
is going to spend a lot of money, early ...
... after it has made careful assessment of targets (so success is likely),
is good at consulting and has a good bed-side manner,
agrees that big development decisions will be made co-operatively and not bull-dozed through etc.
you're going to be attracted to JVing with them and getting the related financial and technical support that gets swapped for some of your equity.
However if several of those ingredients are missing, the JV might become a bit of a cluster****, and the acreage could stagnate, not reach its potential, and be a source of distracting arguments, which small explorers can ill afford.
As to offtake deals, you have to assess what its going to cost to use the plant, and how access will be restricted if there are multiple streams coming in and plant capacity has to be reduced for maintenance etc. Will your share be reduced rateably or will the plant-owner cut you back first before his, say, 100% stream from another area? You can end up with expected cash flow being choked and possibly could be in breach of sales agreements, or at least investor expectations. For small companies that can be very stressful to put it politely.
Finally, what about the alternatives …
For the JV query:
Instead of a possible farmout, could say a float give shareholders what the Board thinks is the best deal e.g. Peel and its gold assets via Saturn?
Or could an equity raising be better if your share price is well-valued ?
For the offtake example, could the ore eg. go elsewhere 'as-is' e.g. if product is highly in demand? And what if Helix found so much ore in its acreage that it was better to built its own plant, and not rely on someone else's etc. You could regret being locked in to subsidizing someone else's plant when you had no idea whether your block might sustain your own (later and better?) plant etc.
In short, depends on the deal and the alternatives!
Cheers, La Tache
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(20min delay)