MGT - understanding where the money comes from, page-78

Hi MGT holders,

Hope you are all well. Sorry to resurrect this thread, but in my OP I mentioned the difficulty/rarity of a mining junior raising capital that represented multiples of their existing Market Cap. I just wanted to update my commentary as this actually recently occurred (sort of) with one of the two funding examples I originally mentioned provided.

In the OP I made mention of Jervois (JRV) who had managed to get US$100m in funding put away via a bond issue, with some tough conditions and a high interest rate (Disc: I don’t hold JRV, this is just an illustration). I won’t repeat the specifics because they’re all covered in the OP, but I saw a bond issue as one possible way MGT could raise the necessary funds for their eventual capex. Well, JRV have since rather shocked the market – not ~two weeks after getting their US$100m bond issue done, they went out and raised A$313m via a capital raise. This is a huge number considering at the time they went for these additional funds, their market cap was A$460m. Just wanted to share as it’s an example of a business with an experience management team (they’re all ex-Glencore and Xstrata) who have been able to pull this off. However it is worth considering the cost it has come at.

Firstly, before the CR, JRV had around 800 million SOI and a market cap of A$460m (so SP of around 57c). In order to raise the extra A$313m – which they needed to fund operations and acquire rights to a refinery – they did the following:

• Raised A$89m from institutional investors at 44c per share
• Raised A$227m from all investors via an Entitlement Offer. This means for every 1.56 existing JRV shares an investor held, they could apply to get another 1 share at 44c.
• Impressively, the placement was fully underwritten - big tick to the management team
• Given the large number of funds required, an additional 711 million shares had to be issued, which represented dilution of 89% (!)
• Again, given the size of the placement, the discount to the existing SP was heavy. Prior to the raise, the SP closed at 57c, so the CR at 44c represented a discount of almost -23%

I’ll leave it there – but thought this might provide a useful guide for MGT holders when considering what large equity raises actually look like. For what its worth, I think its very impressive JRV have been able to raise this much money in relation to the size of the market cap, but at the same time the cost was very heavy for existing shareholders. 89% dilution and a 23% discount to the expiring SP is probably hard to swallow, unless you’re willing to look at the 5 year timeframe. That said, retail shareholders were able to participate in the Entitlement Offer so at least they got pro-rata access to the 44c SP. However it looks like the current SP is trending down towards there anyway, slowly. However, if you’re a junior and you want to raise this much in funds – it is what it is!

Cheers,
mondy