Yes, the deal was hailed a company maker. But by whom? The company itself! And a couple blind followers who repeated the company's - ummmmm - "point of view". Blind because they were blindfolded by the company that did hide pivotal details of the deal from their shareholders and the public for a number of years until Mr. G finally came clean and revealed the truth. BTW, I was one of those blindfolded shareholers. The pivotal detail never was "taken care of". It remains still the same today.
Please don't parrot the company's lame excuses as if they were fact. This started out long before the GFC struck. The GIP boys are unable to find any AD financiers for at least 5 years now. Despite all the necessary ingredients for a good deal in hand: Readily defined resource, a bankable feasibility study, and off-take agreements.
Wolf just as an example was able to announce a deal for 55 million Pounds in senior debt for their mine only 9 months after the BFS was published, even though they did not have the luxury of a signed off-take agreement at the time. A few months later they were able to announce just that too, an off-take agreement with a partner that advances another 20 million Pounds to them. Obviously deals like these *CAN* be done, and in a reasonable time frame, too. It's just the GIP team that has proven its inability to do it.
So just recently they said they were in discussions with potential financiers? Oh GREAT, that's exactly what they said all along!
Let's have a look at the 2008 AGM presentation, page 25:
Abu Dabbab Milestones to watch ------------------------------ Construction 2008-2009 EPCM Q1-2008 COMPLETION OF PROJECT FINANCE FACILITY Q1-2008 (so in fact even GIP admit ink on the financing deal should have been dry long before Lehman Brothers collapsed!) Commencement of siteworks Q2-2008 Commissioning Q1-2010
They even had a CFO back then, Mr. Sims. Now, more than 4 years after the financing should have been concluded, they say they were in discussions. Feel free to "take a little heart in that". I don't!
IMO it is pretty obvious that our leaders knew the company would be in need of more money soon. They know nobody will buy their AD promises ever again, Heemskirk has been sold, and Eritrea is the only place left where they can build another pie in the sky. They have to pray and hope that SOMETHING will be found in the Eritrean drill cores before they actually run out of funds. (Well, in this case Mr. G might decide to open up the wallet and play the heaven-sent saviour again.) Should they find someting, rest assured management will do their best to created another hype. This way the share price might go up, and another cash raising could be announced on top of it. That's why they directed most of the money from the most recent cash raising towards Eritrea IMO (i.e. in order to get some cores assayed ASAP). This would provide them with enough air to breathe for another couple of months, depending on the size of the offering. Certainly the number of shares out would break the one Billion barrier by then.
Imagine the GIPsters were able to find a financier for AD and maintain a debt:equity ratio of 80:20 as planned. GIP would have to carry $200 million in debt and find buyers for new shares worth $50 million. How many shares would that mean, assuming a share price of 0,01?
Assuming an interest rate of 10% (have a look at Windimurra and you'll find such figure to be favourable) they would have to put up $20 Million per annum in interest payments to the banks alone, before any redemption. Assuming a grace period of 2 years and a linear redemption over 10 years, GIP would have to pay $20M in the first and second year, $40M in the third year, $38M in the fourth year, and so on. This would sum up to $350 million over the 12 years life of the credit arrangement.
Looking at their 2008 presentation you'll find they expected total revenues of $530 Million during the first 10 years of mine life. Even if you assume 1 Billion (almost twice the 2008 number, but always keep in mind the ceiling price!) and a net return of 15%, that would make them earn $150 million during these 12 years (2 years construction plus 10 years production), less than half of what would be needed to serve debt and repayment of principal. And you are wondering why nobody is willing to fincance this operation???
Correct me if I am wrong. It was a quick and dirty calculation, a shoot from the hip. But it pretty much explains why things evolve as they do, doesn't it? Even if (and I can't see how this could be achieved) the company was able to eek out a couple millions in profit over those 10 years, how much EPS would that translate into if you devided that kind of profit by 6 Billion shares out?
AR1 Price at posting:
1.1¢ Sentiment: None Disclosure: Not Held
(20min delay)