On 18 June, I posted the below: EV/Lithium, 74379093, page-582 |...

On 18 June, I posted the below:

EV/Lithium, 74379093, page-582 | HotCopper Forum

I've been observing the LTR trade pattern.

Each early morning, big long holders try to support the price, jack it up to entice new buyers. The early buyers have not done well, as the stock price retreats in the afternoon as shorters swamp the sell especially towards the end of the trading day.

From my observation, there's distribution happening and a committed short determined to see the price going lower. As they say, the trend is your friend, and right now, the downward trend is the shorter's friend.

LTR can't drawdown on their $550mil debt facility, the drawdown is needed in Q3 which means next few months, until the following conditions are met.

* Unfortunately for LTR, the lithium spot price has not moved to provide the confidence that the Base Case Financial Model can be sufficiently robust enough....and you'd also wonder if the bankers will have cold feet? We should know very soon. If not, it would be a great opportunity for Gina to increase her stake cheaply via a cheaper CR to include also instos and retailers.

Customary for a debt facility of this nature, and also including:
• demonstrating compliance with customary tests;
• providing a Base Case Financial Model (“BCFM” based off, amongst other things, independent price forecasts and management forecasts of production, capital and operating costs, and which demonstrates compliance with financial ratios; and
• entry into key project tripartite agreements.

And if you were instos, you have to contemplate, given that LTR is no longer a mandatory hold after being removed from ASX100, if it would be better to reduce their position now before being subjected to another CR in the event that the bankers pull out.

If the bankers are not satisfied with the BCFM to be in compliance with ratios, they may require LTR to undertake a CR with reduced amount of syndicated loan e.g $550m loan could be reduced to $200-300m with balance to be procured via a discounted CR.

You see this condition that the loan be repaid within a year of drawdown, suggest that the banks are not all that convinced given the state of lithium pricing.
No scheduled repayments and interest capitalised during the term of the debt facility, with bullet payment on maturity on 31 October 2025

The risk of LTR is the funding uncertainty which does not yet preclude the prospect of a discounted CR and secondly even with loan secured, it remains open to a larger risk with loans compared against equity funding should SC6 price falls below $1000 ahead.


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if LTR continue to stay quiet on the outcome of its $550m funding status which is due for drawdown early Q3 which commences next week, it would likely lead to more concern over whether the financiers have got cold feet and unable to proceed with the structure of the loan after reviewing an independent price forecast for Spodumene and its base case financial model.

If I was the financier, I may want to re-structure the loan to reduce the amount so that it provides additional buffer to meet covenant financial ratios in the event that lithium price continues to stay low or goes lower, and require that LTR seeks a capital raise for the amount that the loan is reduced. Financier may just agree to re-finance the $300m loan to be repaid to Ford which is 55% of the agreed loan amount (Scenario 1) or may pull out altogether (Scenario 2).

I have attempted to simulate a CR scenario and has assumed that a 20% discount is needed under a CR to raise $250m in Scenario 1, and a higher 30% discount CR for a 100% equity raise substitution in place of the $550mil loan should the bankers pull out.

	Column 1	Column 2	Column 3	Column 4
0	SCENARIO 1		SCENARIO 2
1	LTR		LTR
2	NO OF SHARES (MIL_	2,440	NO OF SHARES (MIL_	2,440
3	% of $550mil raised via CR	45%	% of $550mil raised via CR	100%
4	CR Discount% on 90c	20%	CR Discount% on 90c	30%
5	Discounted CR Price	$    0.72	Discounted CR Price	$    0.63
6	Additional shares issue via CR (mil)	344	Additional shares issue via CR (mil)	873
7	% Dilution	14.1%	% Dilution	35.8%
8	Outstanding shrs post CR (mil)	2,784	Outstanding shrs post CR (mil)	3,313
9	Market Cap post CR (mil)@72c	$ 2,004	Market Cap post CR (mil)@72c	$ 2,087

The longer LTR drags on and its share price falls further and it can't get the bankers to agree, the lower the price it has to offer on a discounted CR. So for that, we can or should expect the share price to be supported vigorously at the 90c level, below which it would be a technical disaster.

This would likely be the worse outcome for LTR should it not get bankers approval for a drawdown- which is to announce a discounted CR offer to shareholders, which could take its share price down to 63c-72c level.

This project will not fail. It will not go in C&M (care and maintenance) IMO. A CR is most likely outcome IMO.

If instos is of this view too, what do you think they would do? Sell first @90c and above, and subscribe at lower level. And because the issue could be so big that it may have to waive a proportionate offering.

Gina could participate to take up any % that the instos do not to lift her holdings but if management does not want her increase to maintain control, they would need to entice existing and new instos to take up their holdings with a larger discount.

The big risk to LTR holders IMO is not going out of business, nor C&M but a dilutive & large discounted CR.

This is my hypothetical conjecture view and opinion only and could only be a possibility if the bankers do not proceed with their $550m loan drawdown as previously announced.  

DYOR, not financial advice.