good result (sentiment: lt buy)

Everything considered, this is a good result and the market should see it that way.

1. Solvency fixed: DML's fundamental issue has been financial solvency (ie inability to pay the banks) which lead to operational solvency issues (ie inability to invest in operations to get costs down) which adversely affected its operating performance. To a major extent, this is fixed: a) Assuming the full placement, on a net basis, the company has raised ~$63m, to get to an optimal operational position and more importantly, b) It has bought 2 year repayment holiday with the banks, at a cash cost of 5%. Hopefully, the combination of these two factors get DML both cashflow and profit, positive.

2. Dilution is bad, but why did anyone expect anything else? Given the solvency issues, a market cap of ~$65m and debt outstanding of $150m, what other result did people expect other than severe dilution to keep it alive? a) A takeover at 35c? That was NEVER realistic given DML needed an injection of CASH, not simply new owners. Someone offering 35c (~175m), plus injecting a further 50-150m to take out some or all of the debt, and injecting a further 50m+ to get the operational costs down; this makes it a $275m-$375m investment, which is ~5-6x its market cap. I welcome that investor to step up, but in this market, it should not be surprising that such an investor does not exist(!), especially given the information asymmetry regarding the mine itself. b) A capital raise from existing holders? Well to raise what they have raised today means a subscription price per existing share of over 20c, assuming 100% take up. Clearly this option wasn't getting a standing ovation. c) Lets say someone else was willing to lend DML $100m with no dilution. The market cost of this debt (if it can be priced at all given its solvency challenges), is lets say circa 20%+. ie. its cost of debt is essentially an equity cost, so of course the existing shareholders were going to get diluted! Looking at it this way, they sold ~60% of the company for ~$75m (15% saving on $100m over 5 years). That values the stock around 20c+.

This should trade up tomorrow, and hopefully takes a few shirts off the backs of the shorters. It is a messy outcome, but from a finance perspective, which ever way you cut it, this is the best of a bad bunch of options, given DML's bargaining power. And at least it puts the company in a position where in 12m, it can actually be worth a multiple of its last traded price, if not much sooner (which in my view, it will). Lets not waste more time on who's fault it is as to why we are where we are, or what management did or didn't do before. Its pointless. We are here. And I am pleased that the investor seems credible and keep the board honest, has an outlook on the sector, and their past success is envious.