missing in (in)action, page-2

Nobody is happy and I don't intend being an apologist for failed structured sales etc, some failure has to be worn by management simply because they are in charge. There is a rationale explanation, there is speculation, and there are posters with no idea blaming everything and anything for the falling share price before and after the quarterly.

SFX informed the market with the last quarterly in a semi-clear way. The structured sale process which was 6 months running, had credible offers and serious negotiations down to the wire which has not yet been finalised. Although these parties (party) have not officially pulled out of a deal completely, clearly there has been an unacceptable delay or stand-off on price/conditions at what looks to me the last minute. The quarterly said that negotiations are still ongoing, and yet that moves needed to be made in case any funding deal is delayed by a material length of time. This and the markets deep sell off on the news certainly indicates that a deal SFX spent 6 months on looks shaky at best despite it not officially being called off.

If negotiations were officially over the company would have said. What was written communicated bad news and the market reacted to it (exacerbated by at least one large seller wanting out in a hurry). The requirement to cut costs to the bone and bunker down for a possibly prolonged third funding effort says management are not confident enough of a imminent deal to risk continue spending at a high rate. This is a tactically sensible move when there is uncertainty, give themselves as long as possible. Although a deal may still happen in a months time, once uncertainty sets in you have to take precautions.

How long have the negotiations been looking wobbly? Shareholders will probably never know, although management was very confident to me when I contacted them early Jan. Reasons that an agreement wasn't reached in the time they expected? Coronavirus popped up and is killing China's economy, how long and how bad will that be, and will it tip the world into recession? A good reason to step back from a large and expensive resource project deal imo, why rush before some clarity on the implications. Negotiating tactics to pressure SFX into accepting a better deal? SFX are being pressured alright and such tactics are Trump Art Of The Deal type bastardry been round since Adam was a boy. Partners just got cold feet and couldn't go through with it, sorry to waste your time but our board says we have other priorities right now... Any or all of the above plus more.

Maybe management will outline better the situation and Plan C shortly, there has to be a Plan C and D whether or not that looks appealing. Maybe management are helping to re-set shareholder's expectations, softening everybody up for a more disappointing deal or corporate action in the wind? The bottom line is that so far shareholders have bet and lost that a deal would be done. As I have pointed out for almost a year now, junior resource developers at this stage of the project are a risky and binary gamble. There are no drill holes or news flow to push the price up or attract market interest, it's a boring and frankly unappealing place to invest. Investors should have known this much at least, no deal was ever guaranteed.

Obviously management and shareholders misread the chances of getting some deal over the line. Management was confident, I was confident, yet the appetite at this point in time to stump up >$150M to start this new mineral sand project is poor at best. Trade wars, Coronavirus, fears of an inevitable world recession after a record breaking 10 year bull market etc. Fears of how robust the zircon market will be short term with Iluka still trying to control supply does not help. There are many reasons why SFX have failed to lock in a buyer so far, though it is unlikely for technical risk. Too many experts have signed off and given financiers the confidence to lend a lot of money for there to be real technical risks imo, just doesn't make any sense. The sort of risks have been highlighted by the lithium sector where softening demand at the wrong time has put some out of business and others with debt under real pressure. Resource project equity investors face a lot more risk than financiers and are understandably more scarce and gun shy.

That doesn't mean Thunderbird is not needed to fill a zircon supply gap or isn't profitable throughout the cycle? Of course after two failed partner sale efforts fear and risk of when and how SFX develop TB has risen, and the share price sold down. Management is buying a long enough runway to get some deal down for the best price it can and get TB developed. It's not their fault in reality, their job was to try and get the best deal done to meet the $150M equity hurdle (it was $250M first time around) and they tried with the help of UBS consultants. No buyers right now is a kick in the guts, has cost a lot of people a lot of money (mark-to-market) and made a lot of sick people very happy if you follow this thread. Shareholders have to suck it up, goes with the territory of investing in risky junior resource projects.

It's a timely reminder of what a crap industry this can be to invest in. 8 years work and over $100M spent to discover and permit and great project with A$1B of post-tax NPV, lots of jobs for Broome locals, lots of royalties for the state, tax for the fed government and yet all for almost nothing after 18 months since the final permits were issued. Pumping juniors and selling out into mum and dad smucks before it crashes back to earth is a whole lot quicker and easier way to make money than backing resource project development long term it seems. Still, it is a valuable asset even though SFX is marked down for more failure to develop and longer term dilution. A deal or TO could happen anytime, while expectations for no deal for years is priced into the stock. An opportunity for those not already too long for averaging down imo.

Cheers