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Johnyb888

1,461 Posts.

1006

09/12/21

15:21

Post #: 58192146
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Originally posted by leezy91: ↑

Hi Johnny,

Thanks for the reply, and some good discussion points.

At this point in time, it seems like the capital is for the Lithium Project - i think we have all made that assumption

1.Debt
I would say that there are a couple of things at play here.
Firstly.
A debtor needs assurance that they're going to be paid back. For your home loan you need to supply proof of income etc.
Post demerger, without a binding offtake agreement, debt would be off the table.
With a binding offtake agreement, it would be possible, but this would take months to execute, and would lock us in to a certain supply at a certain cost, in a bullish lithium market. This secures sales for us, but potentially at a lower cost that what lithium will be sold at down the track when we are producing.
Pre demerger, this is a bit complicated, i think that there would be structural issues with the demerger that would make this not possible, or at least very unappealing for FFX shareholders
So in my understanding, they are either unable to access debt as LLL post demergert without a binding offtake, or its either not possible, or unattractive to the FFX side of the business to take on debt now.

2. Raising Cash post merger
Assuming we are raising for the shortfall, its another 8% dilution at this point in time.
Post demerger, with the same assumption, there will be somewhere around 25-30% dilution of LLL if we raised the same amount of $.
I know as a shareholder, i would be more annoyed with 25-30% dilution of a stock i own, rather than 8%
This allows the FFX side to be undiluted, but has significant shareholder repercussions for LLL post demerger.
There are probably some other strategies here that could have worked too, IPO offerings and the like so I agree to an extent this could have been pursued with the key being
- FFX shareholders retain value (+~8%)
- LLL shareholders suffer some pain (-~25-30%)
(i know i have ignored what has already been raised in the SPP, but that is in the past and doesnt affect the future value of shareholders at this point in time)

3. Organic Growth
Once they split (if it goes ahead) LLL has no organic growth
The revenue generated from FFX stays in the FFX business unit.
LLL will have no way to generate growth once the split happens.
If they wait to demerge, you are then delaying the LLL project from going ahead, and there are costs associated with that too.

In a developer (which is what LLL will be) you want fast definitive action being taken place.
Clear steps forward in de-risking the project by ticking boxes and moving ahead.
This is a bullish lithium market, and being a top 3-5 producer, it bodes well to expedite production.

With strong support in the SPP and with the high SP i can understand management deciding to take advantage of it.
There are pros and cons with each, but after thinking it through, and doing my own evaluation, I think it is the best option for shareholder value.

A little different, but look at LTR
They raised all of their capital in equity ($450M with shares issued at $1.65 when she SP was $1,90) dropped their share price by ~ 50c (25%) to $1.44
But, they have retained all future value of their business and they have the cash to execute the project.

Happy to discuss thoughts further.
My opinion only
DYOR & MYOD
I'm long on this one, through to production.
- Leezy

Expand

Hi Leezy

The information as posted here by several people (not 100% confirmed but appears legit) clearly states almost all of the capital is for the gold side.

Also the raise as posted here will be for $100M at 67c... This is a lot more then 8% dilution, more like double that. And that is obviously for both businesses.

Since the money will mostly be used for the gold (Or FFX) my point was this.
They have had some amazing gold results from drilling earlier this year, however due to changing to an onsite lab we have had no follow up results or new results for some time. There is currently a very large back log on drilling results with the drills continuing to spin.
If previous results are any guide, there should be some great drill cores in the back log potentially showing there will be many more ounces on FFX claims. These results should start to come out early next year. And these could well hold up or increase the value of the gold side.
At the same time they are currently ramping up production with higher gold recoveries expected for the current and next quarter, further raising the share price. So 6, 9 or 12months from now the share price of FFX might well be at similar levels as today and if still needed they can do a CR then. This might have only caused 15 to 20% dilution to FFX and non to LLL.

And as the money is meant for the gold side I think the organic growth argument was reasonable.

And I agree this is a bullish Lithium market. LLL is almost fully funded to production and during the spin off there will be another CR (presumably to fill the capex gap) so it is extra bitter that LLL gets diluted (once again) by at least 15% while very little of the money will go to it.

So in short: The gold side of thing has significant cash available...If this gold side is as good as FFX has said it is (and which appears to be confirmed by previous drill results) there is no reason they can't progress while releasing favorable drill results and increasing production. This should lead to a higher price for the gold side and therefore the overall dilution should be less. There seems to be absolutely no rush to get this $100Million now.

Obviously raising capital doesn't hurt the future value of the business. But your slice of it becomes smaller. And this isn't exactly a low risk investment so continuously cutting the potential upside is hurting the investment thesis here IMO.
And who says this will be last time?? I thought the 47M would get them profitable...Then I thought the $50M from SPP surely would be enough?

FFX Price at posting: 75.5¢ Sentiment: Buy Disclosure: Held
18 Upvote

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