This is probably worse in that the $40m to me appears more than is necessary given that it is made up of $20m for capex and $20m working capital. from what I can see the capex is made up of:
$5.5m for trade creditors; I would have thought it best to get a deal whereby their debt was procured by issue of equity. If VXL goes bust they are unlikely to be paid since VXL is required (and currently will be unable to) keep the tenements in good standing (s.9.1 (a) of the prospectus) and:
" may not sell, transfer, grant assign or otherwise dispose of any interest in the Tenements or any rights in relation to any Minerals extracted and recovered or to be extracted and recovered from the area the subject of the Tenements except by an encumbrance which is expressly subject to the royalty, by the sale of Minerals in the ordinary course of business or with the prior consent of SER (with SEG first having executed and delivered to SER an assumption deed in favour of SER executed by SEG and the assignee or other recipient of the interest and rights being the subject of the transfer"
$5.5m debt repayment - Chimeara's recourse will no doubt cover the existing plant but if it cannot produce more than about 1T/day then is is almost worthless. Probably better for Chimeara to take equity and allow the loan (with interest) to be repaid when (and if) the plant can produce graphite economically and of the required quality - if they can't the plant is still there (with more assets) and can be sold. My option would be to call Chimeara's bluff and let them put the company into liquidation/administration. From the 5/10 announcement it would seem that only $4.5m has been drawn from the Chimeara debt facility - I do not understand the $1m discrepancy.
$7m plant upgrade which includes:
- $1m - metallurgical testing
- $4.5m regrinding circuit - consisting of $500k for an extra ball mill to get to just 8T/day (uneconomic as ~21T/day is required to break even) and I presume $1.33m each for 3 vertical grinders (1 vertical grinder should deliver an extra 13.3T/day - meaning that only 1 vertical grinder is needed to get the plant up and working at about the break even point).
- $1m for drying, screening and rebagging - I am at a loss how that could have underestimated the drying and bagging capacity since it does not require technical know how to how many bags and what drying is required for finished product of $58T/day (i.e what they estimate the new plant would produce. Surely the existing bagging and drying would cover the breakeven rate of 21T/day. The may need to spend money on screening since this (like grinding) is required to produce the require quality product even at the ~21T/day breakeven rate.
- $500k contingency
At a rough estimate I would of thought that they could have squeezed by with about $3m - $4m to at least show that they were economic and running at ~21T/day.
$22m for working capital - this seem absurd to me since they do not need to spend much if they pare themselves down to a minimal operation (i.e the directors take a cut and shares in lieu of salary) and a minimal operating cost until they prove that an economic throughput is achievable with a required quality product going to customers who will pay for that product. Once they can show they are viable on a shoestring then export and/or offtake loans are possible and equity investors will stump up more money - the key is to show they can produce the required quality of product in adequate volumes and that their customers will pay for it. Once their credibility is establish money should be available. I would have though that with a bit of effort only $5m - $10m working capital would suffice.
All in all they could get up and running for about $20m and call Chimeara/trade debtors bluff or ask them to take a 'haircut" I guess it will be down to Chimeara/trade debtors or the Tax office to put VXL into administration/liquidation and in the meantime the directors will continue to pay themselves out of our and debtors outstanding funds.
VXL Price at posting:
11.5¢ Sentiment: Sell Disclosure: Held
