AVZ 0.00% 78.0¢ avz minerals limited

Personally I think it will come down to how many new shares are...

  1. 24,192 Posts.
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    Personally I think it will come down to how many new shares are likely be traded in the short to med term on market after the cap raise /debt agreement is in place.

    If its going out mostly to sofi's then the free float will increasethis is not so good in short term as sofies are more likely to sell into a rally. The Huayou cap raise was a big success for all parties IMHO . I liked it because it was decent size therefore generated plenty of cash and it went to Huayou (A possible eventual suitor for AVZ). In short, the shares went into hands that were very unlikely to sell it on market in the short to medium term. So the free float of shares traded remained the same only now we had bags of cash to spend on defining up the resource. The share price raced away once this penny dropped with the masses. In the end the share holders benefited and Huayou also benefited greatly as a strong rally ensued. A win/win for everyone. So question is why would mgmt want to do anything other that to make another such deal.?

    The reason for taking out debt (assuming a portion of cap raise is debt) instead of a issue of shares will be to minimize dilution. It is likely, assuming we progress to production, that the payback period on the debt will be very short. This ultimately preserving/protecting the value of the shares already issued with only a small risk of interest payment (interest rates are v.low historically speaking) for a couple of years.

    Another question? Why raise cash now ...As we have enough cash and just as drilling is to get underway in earnest with 5 rigs? Well as I recall the Huayou cap raise had similar timing. So pressure was brought to bear to make the deal before assays came in and the share price rushed higher. This may enable the cap raise to be done at par or even at a premium to the 10 day Vwap. As the expectation may be of a significant rush on price after results start pouring in. If it were done after a rally due to great results the suitor might well expect a significant discount to the Vwap say 10 -20%. This way mgmt cop less flak from shareholders on balance. Sometimes its better to surprise the market with a cap raise than waiting too long as cash gets low it becomes a drag on the share price. This causes the company to raise at a lower price then it otherwise would/could.

    Sometimes companies raise early if mgmt expects a bad set of results... but in this case the drilling has barely started and the 1st hole of this program is nothing short of spectacular so I discount this reason. Maybe mgmt got spooked by our last little batch of world market volatility which has encouraged them to pursue a deal a little earlier that they otherwise would? Insurance maybe? Perhaps the cap raise is early because they want to greatly accelerate the speed of getting the project up to ensure exploitation of high prevailing Lithium price for the next few years? ... I suspect the Chinese being capable of doing their own calc's on the financial viability of the project will not need to wait for a full scale western style DFS/Bank study typically required by western banks/institutions as proof before hitting the button on large scale finance approval.

    All will be revealed on Tuesday... but mgmt past history of protecting shareholder holdings value has been proven thus far on a few occasions . I suspect it will be proven again.
 
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