From a strategic point of view, it would provide OZL with a short term growth strategy, it would remove the pressure for OZL to "find something" near P Hill. (Mind you if something is found, that would be a bonus). OZL could still progress P Hill u/g and C decline and C feasibility study (but not spend any capex on C mine development - yet). The impact of these developments on cash flow from operations would not be onerous. OZL could use the $750m to purchase RXM and accelerate the mine development, Once Hillside is producing OZL could then develop C. The synergies of having 3 mines in one state would be quite big.
The other thing to remember is that the RXM share register is open (no one has a blocking stake), so provided the institutions could be convinced the impediments to getting RXM at a fair price would be small.
Would OZL wait for the Feas study to come out or go sooner? I would go sooner - the RXM share price seems to have reached a floor.
All this development and capex could be done without borrowing a cent - which makes it even better. But if they did need to borrow (due to short term cash flow issues which can occur when doing new mines) - they have a $300m loan facility they could call on. As a debt ratio it would be about 15%, which is not a significant risk.
Could they continue to pay dividends while doing all this M & A and capex? I have not worked through the cash flow to determine this.
It needs to be remembered that since the GFC, the ability for Junior explorers to bring mines to production has been severely restricted. Banks are unwilling to lend, and if they do, their LVR ratio is much lower than what it used to be. (Look at the cap raising that HGO had to do to get the money from the bank for K). SFR got a $390m loan, but that was 40% of market cap. For a $650m project (Hillside), funding will almost be non existent at current RXM share price. The market knows this and has sold out of RXM cause the market knows Hillside will not be commissioned by RXM.
This does present a window of opportunity for OZL.
HT1
OZL Price at posting:
$7.84 Sentiment: Hold Disclosure: Held
