IGC will have about 182m fp shares by settlement time. They will have about $12m cash in the bank (allowing for a couple of $m expenditure for the next 6 months) and will receive $60m from NKP. So about $72m to be shared between 182m shares = 39cps.
NKP has to find $60m cash from any source available to them, be it convertible notes, share placement, borrowings or other. Every form of equity raising will come at a price of some sort.
Currently NKP shares are trading at 14c, giving the company a market cap of 61m based on 441m shares.
NKP own 59% of the project yet will pay $60m (or aprox their current m/c) to acquire another 15%.
Each 1% of the project is worth $4m based on the price NKP is paying IGC. NKP should therefore be worth 59%x$4m or $236m.
How do they borrow their current market cap in cash to increase their holding from 59% to 74% without diluting shareholders too much?
I don't think they can atm which is no doubt why they have taken up the option to defer sttlement for 6 months. This is where CFE fits into the picture. With Sage controlling both IGC and CFE, I'm sure CFE will be more than happy to strike a deal with NKP where they will either take cheap (comparatively) shares in NKP or more likely convertible notes for at least 50% of the $60m.
CFE have more than 10m IGC shares which will return them $4m in 6 months and I'm sure Sage will want to keep his finger in the pie. He has shown he is willing to use CFE's cash to take strategic positions in cash-strapped companies, so if he can arrange something where CFE lend NKP $30m for convertible notes paying a return of 10% or an option to convert the notes to shares at say 30c in 12 months he will do it.
Should the market recover then NKP will be able to raise the money to pay CFE back the $30m plus $3m interest. If not then they issue 100m shares to CFE and maybe the same amount to cover the other $30m they need to find.
If NKP are forced to issue shares then they will have about 650m on issue for a project which their 74% share is being valued at $296m. This would give NKP a share value of about 45c, which I reckon Sage would be more than happy for CFE to own 100m of. That would give CFE around 15% of NKP for a nett cost of $23m ($30m less $3m c/n interest and $4m cash for IGC holding).
Xstrata may yet decide to muscle in on the capital raising which would be the best outcome for NKP.
It seems as though the market still has doubts whether the deal will happen. IGC trading at 25c atm represents around 40% discount to the return of capital possible in 6 months time and NKP trading at around 25% of the equivalent price they are proposing to pay IGC (based on m/c of $61m for 59% as opposed to paying $60m to acquire 15% more).
If the deal comes off then IGC at 25c is a bargain. That much can be certain based on the shares and options on issue versus the 39-40c return per share.
NKP is less certain as there is yet to be any equity raising details, but they still seem relatively cheap to me at 14c.
CFE could yet be the dark horse here. With Sage running both CFE & IGC, I think he will be all over this. There is of course the connection to Peter Landau who is on the boards of NKP and CFE.
I hold no shares in NKP, IGC or CFE. Take what I say here as simply the ramblings of an over-active mind.
Footnote: CFE today announced they have bought CUO's debt. Apart from their Australian assets CUO own about 17.5% of Platmin (AIM/TSX:PPN) which has a global resource of 9.74Moz 5PGE+au in measured & indicated category and 10.33Moz 5PGE+au inferred. This is all located at the Bushveld Complex. Co-incidence? Maybe.
CUO don't own the assets of CUO, (yet) just the debt.
IGC Price at posting:
25.0¢ Sentiment: None Disclosure: Not Held
