The notice on Friday 24th April in regard to Yibin not proceeding with their shareholding is another blow to AVZ. I was amazed at the Australian Govt's decision and expect that in the longer term Australia will be poorer for this action.
I expect that in the short term we will see at least a 10% to 15% drop in AVZ's share price unless AVZ responds urgently to this change of circumstances.
I don't believe that the project is dead but AVZ's position has been weakened by the loss of capital and compromises their ability to complete offtakes/finance etc. AVZ will have to work fast to put together a number of deals to satisfy the DRC Govt. etc that they can bring this project into production with minimum delay. The DRC Govt. are desperate for the project to proceed and AVZ will probably also need to keep faith with Yibin. No one should also underestimate the Chinese / DRC strong relationship.
Assuming [BCOLOR=rgba(246, 213, 217, 1)]Yibin[/BCOLOR] (is still keen to proceed) want some ownership, they have an easy task to bypass AVZ and deal directly with Dathcom
( providing AVZ agrees). AVZ has first rights to any sell-down by others on the 40% that AVZ don't have in Dathcom. With AVZ's current agreement to purchase a further 5% of the project this deal could be assigned to Yibin. AVZ could also arrange to transfer their rights on the other proposed reduction in ownership. The value of the deal for AVZ's extra 5% from Dathcom and Yibin's proposed deal with AVZ have reasonably similar rates for purchasing shares.
This strategy can be completed quite quickly and satisfies all parties desired situation. Yibin get say 20%, the DRC shareholders retain say 20% and this would help the project to proceed.
AVZ for their part i believe would need to sell down some of their 60% to get in another strong backer along the lines that Ivanhoe has with their Kakula copper project further south in the DRC. This project required US 1 million initial capital and Ivanhoe financial analysis nominated an IRR of 41%. The shareholding for this project is 39.6% Ivanhoe, 39.6% Zijin Mining Company,0.8% Crystal River Global Limited and DRC Govt 20%.
I suspect that AVZ will now have to reduce their stake in the project to a level of say 30% to 40% to ensure that they get a large experienced group committed as a significant shareholder. This action would provide some additional capital for AVZ, make it easier to obtain finance but also help to lift the credibility of the project.
My above comments are not the only solution but i believe that this type of strategy could be the quickest type of arrangement to keep the project moving with minimum delay.
We all hope that AVZ were warned of Yibin's withdrawal and have already made steps to get the project moving with a minimum delay and protect AVZ's shareholders best position.
Obviously, my comments are only speculative and have no insight into AVZ's strategy. They are offered as one possible speedy solution that could have some merit. With the current FIRB stance no takeover of AVZ by any foreign entity looks possible and for AVZ to list on any other exchange would take quite a long time.
AVZ Price at posting:
5.9¢ Sentiment: Hold Disclosure: Held
