According to the presentation by AXO's MD Charles, AXO need capital cost of 1 billion dolloars to finance the project, the breakdown are as follow:
1) 65% Senior debt funding from banks ($650 millions dollars) 2) 35% equity funding (($350 millions dollars)
Assume placement at 30 cents per share which represent some premium at cuurent share price, In order to achieve the project financing by share placement. they need to issue 1166 millions new shares to get the $350 millions dollars to fund the project and they get the $650 millions dollars from bank loan.
Total share issue after share placement: 1166 Millions + 151 millios shares = 1317 millions shares
I have serious doubt over this project financing,my concerns are as follow:
1) In current share market situation, how the company can raise the $350 millions dollars funding by share placement? If the share placement goes to the chinese steel company, they will end up with 90% or more of the company which will lead to compulsory takeover.
2) With the iron ore price slump, if the iron ore price drop another 20% by 2010, with 1317 mils shares issued, the earning per share will be a very ugly figure which in term will put a constrain the share price. The share price will not see the one dollars mark unless there is a dramatic increase in the iron ore price.
Will the recent increase in share holding by the Chinese steel conpany, I suspect that the chinese is behind this and their aim is to grab the AXO Bella Bella project at a dirt cheap price by offering a takeover bid at a cheap price and then threaten the share holder if we don't accept the takeover, the company will go down the drain! By doing this, the chinese company can secure ten millions tons iron ore supply to them with a cost of $350 millions dollars to get the project up and running.
For the AXO management team, I reckon they are not doing the right things the share holder because they didn't make a decision to raise funding at the time they can easly achieve it and they decided to leave it to the last moment. I guess they can make some money for the shares they owned from the takeover offer from the Chinese steel company at whatever price they offer because they only pay 10 cents per share, unlike most share holder who brought the shares from 1 dollar to 1.4 dollars.
I am very concern about what is going on regarding this company and I hold about 100K shares on AXO. GG and Autobot, I reckon you guys know lots about this company, can you share some thought?
AXO Price at posting:
21.0¢ Sentiment: Hold Disclosure: Held
