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Haha all good - nah we are on the same page really. Like others...

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acwbagnall

1,843 Posts.

1463

07/10/22

17:09

Post #: 64089655
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Originally posted by Egeria: ↑

Tough crowd hah. My reply wasn't spitefully and definitely not intending to fob you off or anything like that. I actually appreciate such discussions.

In saying that I am not one to argue empirically proven finance theory. Run a dcf valuation with and without debt and see what you get, it isn't just me picking random bits to argue over, the brokers a lot of people complain about take a similar approach. So while our views may differ the market does price these sort of things in, usually positively when a company not seen as needing debt takes some on.

We want the same thing in a different way, I do not wish for the cash to sit around accruing interest and want it to be deployed, just as you do.

My view is pretty simplistic, I have a strong preference for using someone else's money to fund projects over shareholders funds so long as the cost is lower vis a vis what I expect the stock to return on my investment, whether it be via dividends or capital gains (fundamentally that figure is more than the cost of debt). Leveraging the asset, sdv in this instance frees up capital to be deployed elsewhere, if it gets paid out happy days, you won't hear any complaints from me and it will be very accretive to your returns as it sends a very strong signal to the market. Add to that the fact the financing will be ring-fenced at sdv level (as all pf is) with no recourse to the rest of ake, as a shareholder you're getting low risk leverage to fast track potential other capital deployment opportunities. Again if that means dividends or other investments, great.

The fact it is tax deductible helps but again you're paying cash for interest you wouldn't have paid otherwise and tax on accrued interest for cash in the bank.

The counter argument to this could be that excessive cash in bank makes the management complacent, debt can be disciplinary and the leanest operations are those with a healthy level of debt. Having a lot of cash in your pocket with plenty of projects in the pipeline makes you a potential target, which I think ake is. Again, deploying that cash would be prudent.

Beyond that, it wasn't too long ago that lithium was in a slump with no interest from lenders. Establishing relationships with IFC and other commercial banks alongside is extremely positive and will bode well for future financing opportunities. Ifc is very active in Argentina and African countries, a strong endorsement from them and other lenders is a great outcome. You have to remember things won't always be this rosy, establishing these relationships now will go a long way into the future.

U$200m is minuscule in the scheme of things. Hopefully a rounding error in a few years time.

Happy to disagree and debate in a civil manner.

Aimo

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Haha all good - nah we are on the same page really. Like others have said, I am quietly hopeful that this is a sign that something big is in the works that we would need this extra cash for. If however that is not the case then I'll be rather disappointed and this is a bit of a strange decision imo.
Yes the alternative to a big purchase might be to pay out excess capital as a dividend but is that really good for shareholders? I don't personally think so - surely management can find better uses for cash than that right now.
So this better be the precursor to a high quality WA hardrock asset, a canadian hydroxide plant or both going in the shopping cart in the very near future! Just a shame we narrowly missed out on one a couple of years ago for sub $100m.

AKE Price at posting: $14.74 Sentiment: Buy Disclosure: Held
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