Originally posted by DoctorFouad
Hi Oleg, thanks for your comments, personally I would be more worried about the ability of MZI to become a sustainably profitable company and pay down rapidly its large pool of debt (170M$ which is a drag on the stock price) rather than worrying about an unlikely (at least in the short term) aggressive takeover by our biggest shareholder, financier and supporter : RCF Fund. For a myriad of reasons :
1-
RCF are already increasing "FOR FREE" incrementally and regularly their shareholding in/ownership of MZI by 2% - 3% increments each quarter (they now own 56% of the company), so why pay cash to acquire more shares in MZI ?
2- Acquiring 100% of a company means you also acquire its debt,
why would RCF accept to take the responsibility of owning a high level of 170M$ of debt ? why not wait until the company reduces substantially its level of debt ? why not wait until MZI pays most of its debt to RCF ?
3-
RCF is getting a lucrative 15% interest rate on its loan to MZI, why would RCF acquire a company that is providing them a 15% annual return on their invested capital plus any additional return thanks to increased share price (value of owned shares) in the future in case MZI achieves profitability ?
4-
"RCF Fund number VI" is a "PRIVATE INVESTMENT FUND" composed of private investors and not a "mining company", why would a private fund own and manage directly a mining company ? why not just wait until the company realizes its full value/potential and liquidate/sell and disrtibute profits to the fund investors ?
If RCF was a mining company in the mineral sands business (like Iluka) a strong case could be made that they would prefer to acquire the whole company in order to own its producing assets and consolidate their portfolio. However, IMO a more profitable/easier option for a Fund is to wait for te share price to get much higher and sell their ownership for nice cash profits. My understanding is that RCF Fund number VI was founded in 2013, and the average lifetime of RCF funds is likely around 10 years so the Fund number VI should be expected to be liquidated and money returned to investors by 2023. In other words, IMO, RCF has no intention to own indefinitely the companies it is invested in (it is not take over and hold forever warrenn buffett style of investing), the goal is to own large shareholdings in those companies for a reasonable amount of time and then sell to make nice profits.
Regarding my point number 4, these are some related quotes from the FAQ on RCF website :
http://www.resourcecapitalfunds.com/faq#toggle-id-15
Quotes :
"Question : As a private equity firm, RCF's Funds will have to exit their investment at some point. How does RCF do this and doesn't it pose a risk to other shareholders?
Answer : The Funds have an established record of exiting investments in a managed and disciplined manner with a strong emphasis on minimizing disruption to the portfolio company and if listed, its stock. After all, the Fund’s interests are aligned with the interests of other investors. On average, the Funds hold investments for approximately four years with a few hold periods as long as six to seven years. However, there are occasions when market dynamics and opportunities lead to monetizing part of all of its investment, in a shorter or longer time frame.
"Question : Is private equity suited to the cyclical nature of the mining industry ?
Answer : Yes, RCF provides patient capital and remains committed to strategies irrespective of short-term commodity or equity price fluctuations. The affordable, discrete and stable funding provides an alternative to public equity markets. RCF has no redemption pressure and committed funds of up to 10 years."
End of Quotes
5-
If the intention of RCF was to takeover MZI, they would have already done it by now at these distressed ridiculously cheap prices (30M$ market cap). Why would RCF wait much longer and risk the share price going much higher ?
Finally I am not saying there is no risk for RCF to takeover MZI at a cheap price before MZI realizes its full potential, rather what i am saying is that at least in the short run that is an unlikely scenario because I dont see much of an advantage for RCF doing so. They are already fully invested in MZI, they poured so much money and IMO all what is important now for them is to get a nice return on their already invested capital on MZI !
Hope that helped and happy multi-bagger investing to all !
Dr. Fouad, have you spoken to Martin Purvis recently, I sent an email asking when we could expect an update on production but no response as of today
