Hi Allee, The landscape has certainly changed since the capital...

Hi Allee,

The landscape has certainly changed since the capital raising and economic study were completed.

It's worth looking at how much, funding the restart with equity instead of debt, costs existing shareholders.

Let's assume @mulac is correct in assuming that we could raise $30m at 5c a share and I'm correct in thinking that the assets that shareholders own are
*plant and equipment $200m
* future tax benefits $100m
* resources $50m

So $350m which is 30c a share. Raising $30m lifts assets to $380m but drops the per share number to 21c.

The cost of funding the restart with equity instead of debt for existing shareholders is therefore 9c a share or $105m plus they loose 33% of the future income stream.

The alternative is to pay a lender between $1.5m and $4.5m in interest.

It's a no brainer, no capital raising gets a big tick from me even if we have to pay users rates to a lender. Debt comes with risk but given $350m of assets and $100s of millions of free cash flow $30m of debt is a very low risk option given the cost of removing that risk..

The free cash flow from the economic study mine plan at todays prices after likely cost increases would have fallen to circa $13m in the first 6 months and $50m pa thereafter.

It would be nice to think the company was well funded going forward to keep exploring to fill the plant asap. With corporate costs and exploration running at circa $1m/month it would take about 16 months after production commences to repay a $30m debt with interest from free cash flows at current prices. So we would have exposure to 50% of the debt for 22 ( 16+6 developing the mine) months.

What would it cost in interest if we went for a risk tolerant lender who didn’t need hedging.

In the property development business you would need to pay about 12 % so let's say 15%.

15 % of an average exposure of $15m for 22 months equals $4,125,000 which is of course peanuts if trying get the rate down to circa 5% to save $3.6m means we have to hedge a bunch of copper at circa $13m less than the forecasters are saying we should be able to sell it for.


The alternative of delaying the start waiting for better times is also a big looser for existing shareholders.

I guess that could be done on a suck it and see 6 monthly basis.

What would the cost / benefit of that be for existing shareholders. If things are going to budget, during the last 9 months we have been spending .$240,000 / month on Corporate cost and $300,000 on Care and maintenance of the plant plus $800,000 a month on Drilling and Studies.To continue exploring for another 6months to extend the mine life or better still fill the plant would involving raising circa $9m which at say 4.5c a share would mean issuing 200m shares.If we were an explorer that only owned resources and the extra capital would serve to increase those resources that could make good sense for existing and new shareholders.

Let's hope our explorer chairman focuses on the fact that, that is not the case because existing shareholders also own circa $200m worth of plant and equipment and $100m of future tax benefits which are worth 25c a share. Spreading this across an extra 200m shares the value per share drops to 21.4cExisting shareholders drop 3.6c a share and incoming shareholders get 21.4c a share worth of assets free in the deal.In six months time there is no guarantee what the landscape will be like.The negative effect on existing shareholders is $43.m to gain the possibility of selling the 1st 6 months of production (6kt of cu) for a bit more. For that to be worth while for existing shareholders we would need to be getting A$3.25/lb extra.There doesn’t seem to be much future in that. The longer we delay the worse it gets.

It seems to me that we need to get into production ASAP before the cash runs out or give away big chunks of the assets and future cash flow.