Financing challenge & strategies

The challenge for management to assemble the financing for Peake has drawn many posts pro & con in recent weeks.

I have followed them all, mostly with interest.

Raising the sizeable A$960m financing for Peake & the need/demand for solid ongoing progress announcements has led to comments on HC that range in timing from those who express ongoing doubt & little hope "somewhere in the never never" to those that live each day for the great announcement & have "short term warm feelings in their bones".

It's tough being a potential shareholder in something big isn't it. Perhaps a little less tough for those of us who have been on the journey for some years & watched as the Project has gradually been de-risked, in what I would describe as a pretty neat game of chess. Wouldn't we all like to be the proverbial fly in the Boardroom right now!

But, we're all investors trying to make a buck. Some of us have a lot of skin in this game. Others are just day traders or taking a casual interest because of a good tip from a mate etc. The majority of SH are probably working, some are not. Currently, impatience prevails, whether you're a short or long term holder (& I'm in the latter category).

So, given that we haven't got the "inside running" we can but speculate about the timing of locking down the finance we need. So, I thought I would advance an idea or two to keep everyone's juices going:

Facts...what do we know to support our beliefs?

*DFS..gives us outstanding financial potential. The numbers would / should attract global investment;
*Tivan.. breakthrough patented technology that should create it's own future demand. Standalone value unknown?*Commodities..Vanadium & Titanium production purity likely to be in future demand;
*Stability of Operation...Australia=political & economic stability, rule of law; skilled labour force; developed infrastructure; reliable resources exporter;
*Potential Partners...strong regional/global strength - Woojin/Hyundai/Posco/SMS Siemag/Catepillar/Govt
*Off-take...Woojin locked in for 60% of LOM Vanadium;
*Agreements...CLC has provided indigenous approval for Peake ; EIS approval likely for Peake by Xmas '15 & proceeding smoothly for Tivan refinery in '16;
*Water Supply...Peake has a LOM water supply;
*Infrastructure...Peake is well located to gas pipeline, road & rail to Darwin. Darwin port facility has been secured:
*Management team..strong, experienced Board members + Aust. consultancies + CSIRO who have been on the journey. Issues surrounding Chinese Boardmembers appear to have been resolved;
*NT Govt..key supporter of Peake as a "major project"; Expect mining approval for Peake to follow receipt of EIS...expect the Feds to come on board under northern development plan.
*Fed Govt..new move to Innovation/Commercialisation strategy has potential spinoff for Peake. Northern Australia development Plan/Fund could provide support?
*Renewable Energy...rapidly growing momentum/switch in emphasis since Turnbull. Battery storage now the main game in town. V Redox application to major grid applications could be a real future winner (enter Vanadium production & Peake purity).

What don't we know?

*Global Political & Financial uncertainty...are the major ExIm banks of Korea/Germany (being our potential underwriters for our key partners) under short term pressure due to world events e.g. slower Global growth/China slowdown/Greek debt funding situation/European refugee crisis/Middle East political uncertainty/VW extended credit funding crisis;
*Slower Global Growth...see above + latest IMF forecasts (means commodity consumption & price recovery is subject to further delay);
*Off-take agreements...Are the remaining off-take deals being slowed due to factors above? Are the potential off-take partners waiting for all milestones to be achieved e.g. EIS approval for Peake & the Tivan Refinery, Govt. mining licence approval?
*Funding from Fed/NT Govt...will these bodies stump up a significant contribution towards Capex e.g. $50-$100m?
*Share dilution...will Capex financing be achieved with minimal share dilution e.g. 30%; will debt financing terms prove to be unattractive?
*Cashflow...As at Dec 30 '15 there is forecast to be $4m cash at bank, plus an expected R&D Govt subsidy of approx $1m. Opex will be under pressure in Q1 '16 if some new financing is not in place. Share Holders would not welcome a CR.

Financing Alternative - 2 tranch approach

From the DFS, we learnt that overall project Capex cost to get to production was approx. $960m. Of this the Tivan refinery was approx 2/3 or $650m. This means that the Peake Capex is approx $300m.

So, why not proceed with a 2 tranch financing strategy i.e. Peake now & Tivan during 2016? From the info that we have almost all the ducks appear to be in a line for Peake except for:

*EIS approval by Govts. (expected later this year)
*Mining licence issue (to follow EIS approval)
*Off-take agreements for all remaining resources

At the upcoming AGM, I noted with interest Resolution 14 which seeks approval of a special 60m Future Share Placement Facility to be available in the 3 months following the AGM. That suggests either the need for some short term bargaining flexibility in finalising finance. Of course, it could also simply underpin cashflow/Opex as we move into 2016.

The recent entry of Catepillar into the mix with the potential provision of construction equipment, power systems & access to finance for Peake. PB mentioned that this was a significant chunk of the Capex requirement & the terms under discussion were favourable.

Splitting the financing into 2 tranches would take the pressure off having to wait for all the final Tivan refinery pieces. Perhaps there are downsides that I'm missing e.g. off-takes contingent on Tivan refinery approvals?

Either way, PB has signalled that we can expect some announcements in the weeks ahead.

Interested in thoughts of all.

Jvest