Time is of the essence for Jervois Global. They have just...

Time is of the essence for Jervois Global.

They have just reported US$26.6m in cash at the end of the March 2024 quarter.

The debt covenant requires minimum group liquidity to be 10% of total debt. Total debt = US$169.1m (incl the con notes), so this 10% = US$16.9m.

Given that they can’t generate +CF (only silly adjusted EBITDA numbers), they are mighty close to breaching their debt covenant.

Jervois’ flagship asset, the ICO, is on C&M due to low cobalt prices - courtesy of the Chinese flooding the market with DRC supply. They spent the capital allocated to the SMP on paying down their Mercuria debt. US$44.1m in Mercuria debt remains and must be paid back in full by the end of 2024.

The company is super close to going under, but that isn’t a fait accompli - as long as certain critical moves are made in the next few weeks/months.  

IMO, this is what they must do pronto.

1. Sell their entire share of the Kokkola refinery & pay back the bondholders in full (US$100m).

Let’s face it - they couldn’t make this margin business work because they failed to review and change the legacy contracts re: cobalt feedstock BEFORE they acquired their share of this asset. As such, they were forced to stockpile cobalt feedstock at peak Co prices and then suffered massive impairments when the cobalt price collapsed. They failed to implement other cost-cutting measures until it was too late, due to their ridiculous bullishness re: cobalt prices. If you can’t make an asset work, sell it to reduce debt. It’s that simple.

2. Sell their cobalt inventory and pay off the Mercuria debt in full.

This will see them debt-free, but sans their only cash-generating asset. Meh - they can’t even breakeven with this high revenue, extremely low EBITDA asset - so it is no big loss.

The high gearing noose will be removed from their head, however, the constrained liquidity issues will remain. And with well over 2 billion SOIs, they have blown up the capital structure of the business and diluted all their loyal legacy shareholders into oblivion.

3. With Aussie Super’s support, they will need a cash injection to keep the lights on. IMO, Aussie Super would most likely support them via more con notes rather than equity (using the same playbook they used with Syrah, et al.)

4. Move all chips into the ICO & negotiations with the USG. In the interim, they will need to somehow find a way for the ongoing C&M costs at the ICO (US$1m per month) to be funded. Only option here is the USG IMO. They’ll need to list in the US - something I spent years trying to push them on without luck. And they will have to negotiate hard and hope the USG will agree to establish a strategic cobalt stockpile and via domestic sources (ICO). And the USG will have to pay almost double today’s spot price of cobalt for this stockpile. IF this miracle were to occur, the best outcome would most likely be a breakeven scenario. They won’t make any money from the ICO. A domestic cobalt refinery (again funded by the USG) and perhaps operated by Jervois - might be their only way of generating any money - but I highly doubt it.

5. Personally, I think they should walk away from the SMP and cut their losses. There is an outstanding final payment required to secure ownership of this asset (capital they don’t have) and a modest amount of capex needed to bring it online (capital they don’t have). Unless they can find a non-dilutive funding source, then this asset isn’t getting up. And given the Kokkola debacle, I have zero confidence in their ability to run a margin business anyway. And nickel has become an increasingly difficult area - courtesy of the Indonesian nickel/Chinese money cabal. Right now, they are paying US$1.5m per quarter on SMP C&M. Wasted money.

Unless they follow the above blueprint, they will move into VA in the coming weeks/months.

I was unable to fly over to Melbourne from Tokyo to attend today’s AGM, however, I have been told via multiple sources that the gist was that they are working to realise value from their existing assets. I don’t think it was explicitly stated, but perhaps implied or interpreted by a few, that an asset sale may be imminent. Please don’t hold me to that, as I am simply sharing what I have heard via those who attended the meeting. I will not be revealing my sources. If anyone in here attended today’s meeting and felt the same way, it would be helpful if they could confirm this point and share it with other shareholders.

In the event that they manage to save the business from going under and if the SP reacts somewhat positively to any potential asset sales/elimination of debt + a refreshed strategy in the coming months - I will be looking to exit at some future point later in the year. I have lost complete trust in the entire management team and Board. In 30+ years of investing, I have never encountered such an arrogant and incompetent bunch of muppets like I have at Jervois over the past 5 years. And I am beyond disappointed (absolutely gutted in fact) with today’s voting results and the fact that all resolutions passed.