I saw the news re: cap raise over the weekend and had a read. I also read the gripes posted by many. Some comments are a bit too extreme for me, but most do capture my own gut reaction. I’ve tried to move past my emotion and list my actual concerns rather than those minor annoyances. It’s a whopper but I needed the therapy. it is not aimed at you. I'm just joining in the conversation.
First read On first read I noticed all the good noises about;
rights issue being offered at the “attractive” price of 0.013, and
funds used to begin P1 capital works immediately, and
any surplus funds will be directed toward P2
These are great comments. Lots of implied goodness. They touch all the things that an eager shareholder wants to hear.
Second read On second read I tried to lock-in my confidence by connecting statements in this prospectus with previous company announcements. I listed out the following bits that do not sit well with me.
Working capital Strong feelings have already been posted here, particularly that LPD mgmt continued to say that P1 was funded through to FID. The pro-forma balance sheet (pg 16) is presented on the expectation that the Acuity ATM facility will be drawn in full. Even allowing for back-pay to mgmt for austerity measures during 2020, these are large amounts and large chunks go to additional working capital despite assurances. Grrr…
Funny money Any surplus funds directed toward P2. Obviously this depends on whether surplus funds can actually be raised but setting that aside... didn’t management declare in the previous cap raise that “further work on P2 will be suspended until P1 FID is complete”. Nobody asked LPD mgmt to make that particular disclosure about P2 back then. We are not at P1 FID yet. If there is now a change in plan what caused it? Under the circumstances, surely shareholders could expect the same level of forthright disclosure that was offered when it suited management?
If LPD now wants to raise capital for P2 then do it separately to P1 and keep some discipline. Efficient use of limited funds, plus mgmt’s full focus, should be on getting P1 FID across the line. According to LPD timetable P1 FID is only 6 weeks away. Go speculating for P2 in 6 weeks when P1 FID stacks up.
Strategy Strong opinions have been made about a lack of strategy. The sweet nothings that LPD has been whispering to retail investors is the funding strategy, not the business strategy.
Regarding business strategy – I think the actual business strategy has been clear for a while. A quick flick through previous company announcements gives a trail of examples where LPD mgmt does things at a tangent to what it has said to retail shareholders. To explain myself, I posted a few years ago that I felt LPD was being disingenuous by telling shareholders its mission was to “fast-track the business to cashflow” (the strap line). The reality was that it was actually tinkering, backflipping, exploring, etc. Either fast-track to cashflow or tinker… I don’t have a problem with either… just pick one or the other… but don’t say one thing and do the opposite.
Regarding funding strategy – I would say LPD’s funding strategy has worked a treat so far. From my own post #42186994 written in January 2020 (nearly 18months ago) “My observation is that LPD has given mixed messages in announcements over recent months. Carefully timed and curated announcements in 2019 imply many things… followed by rights issue … swiftly followed by significant changes in plan after retail shareholders had participated in associated capital raise. There seems little doubt that LPD has worked the share market in 2019 as hard as any short-term trader.”
It seems the funding strategy continues to work very well for LPD and for traders, but not so well for loyal holders. We just watched another company-initiated pump and dump. This one was fueled by whispers of imminent offtake agreements. Turns out the agreements were non-binding LOIs and the “offtake agreements” not as imminent as mgmt implied. While everyone was frothing about “progress” LPD mgmt has injected ~$2m working capital via the Acuity facility and now a ~$9m cap raise. As a loyal holder this might leave one feeling violated … but I reckon it is best not to confuse business strategy with funding strategy.
The Plan The P1 timeline leads to completion of funding strategy and an FID in mid-2021. It is difficult to imagine what drives the urgent need for this cap raise. I say urgent because P1 FID is only 6 weeks away and the uncharacteristic mistakes in the documents point toward something behind the scenes changing faster than LPD mgmt could keep up.The wash up is that we now have a change of situation. The Board has decided to allocate funds raised to P1 before declaring to shareholders its intention to proceed/not proceed with the P1 project. We do not know the reasons why the Board has decided to begin investing shareholder funds in P1 before the FID is complete. Please remind me what an FID is for!
Even if I want to take a “glass half-full” approach I cannot ignore the following …
Track record Many will want to point to what has been achieved or what could be achieved. I am in the camp that requires mgmt to make concrete progress and to do what it tells me it will do.I cannot ignore the way LPD handled the timing of previous cap raises and then subsequently revealed news about;
the need for L-Max pilot plant for carbonate offtakes,
the Portugal to Namibia swap,
the strategic sense of moving the P1 plant to Abu Dhabi to be near existing sulfuric acid,
the follow-up news that there was no acid in Abu Dhabi and we would need to build our own acid plant,
the reasons for a need to switch to hydroxide when carbonate markets were perfectly fine,
the 12month delay in announcing the need to retro-fit the P1 plant to make it possible to produce carbonate,
plus others.
This track record forces me to cross-check company announcements very carefully despite the carrots that get dangled before each cap raise. I am now assuming some change of plan has occurred and assume it will be many months before it is revealed to shareholders.
Participation by SM Some here have already highlighted concern about insiders choosing to not participate in this capital raise. I agree that insiders “participating” is usually a reliable indicator of managements opinion of a company’s near-term prospects. “Lack of participation” is less good but it would be wrong to automatically assume the worst.
A look back at LPD does show that previous participation by insiders was token at best. This time around the company announcements remind me of a rug salesman spruiking “come and grab a bargain”. The Board wants retail shareholders to believe this raise is “attractively priced” … but SM is not participating at all? … even at these “attractive prices”? Surely they wouldn’t want to miss out on such a bargain? Hmmm…there is an elephant in the room.
The elephant in the room This cap raise to retail is made less than 6 weeks before the P1 FID draws a line under nearly 2 years of work. No doubt much has been learnt in the past 2 years.
A classic shareholders dilemma has been cleverly designed and perfectly implemented by the Board. LPD mgmt currently knows a lot of information that has not been made available to shareholders. The expression I am familiar with is ‘information asymmetry’.
We are not the first group of shareholders to be placed in this type of situation by a clever management team. Pecking order theory is a basic concept in corporate finance that helps shine a light on situations when;
when a mgmt team believes the current share price is over-valued, and
when that mgmt team has access to information that, if known to shareholders, would cause the share-price to fall,
then that mgmt team will raise equity at the higher price before the private information is made public.
This is not a theory that was cooked up yesterday just to disparage the LPD mgmt team. It has been around for ages and serves as a good guide to shareholders that find themselves confronted with a clever mgmt team that keeps them at an information dis-advantage. The wiki blurb below is an easy read plus there are many other in-depth analyses that do calculations, etc. (https://en.wikipedia.org/wiki/Pecking_order_theory)
My apologies That is my list. I got depressed writing but it was good therapy. Given the circumstances I wanted to park my concerns into defined boxes rather than just rant.Perhaps others can add a (positive) perspective to balance out my (negative) observations.
Go the slow ‘pus
LPD Price at posting:
1.2¢ Sentiment: Hold Disclosure: Held
(20min delay)
