How can you say that a jobs number torpedoed a deal. Again, I reiterate Fletcher Morgan made comments that they have been looking at Nueva Esperanza for months. Kingsgate management told me that they were in touch with one of TDG's representatives for an extended period of time. One cannot make 5 year investment decisions based on monthly jobs data.
I have other questions on this deal:
1. First, I am not sure I quite understood the logic of a non-binding LoI in the first place? Why not wait until the deal was binding until it was announced?
2. Why would TDG launch a private placement immediately after announcing the Nueva Esperanza deal given the use of this financing was for their other properties? Why not raise it all together?
3. The size of the raise versus the market cap is undoubtedly a big ask. We are talking about a recently formed micro-cap miner trying to raise a multiple of their market cap. I would understand if it was a bought deal or somehow underwritten, but is/was it achievable? Again, perhaps they have a large part of the book spoken for.
Let us recall that in 2018 the company decided to put the asset up for sale, appointing Investec as acorporate finance advisor. In 2019, the company called off the sale and impaired theasset by AUD$ 33m, leaving it with a net book value of AUD$ 27m. This valuation was subject to a fairness assessment by Kingsgate's auditor and in reading the 2019 annual report.
In the 2019 annual report, the company provided additional information on the impairment, noting “Significant judgements and assumptions are required in making estimates of the recoverable amounts. This is particularly so in the assessment of long life assets such as for the Nueva Esperanza Gold/Silver Project in Chile. In developing the estimated recoverable amount for the Project, the Group has considered the results of the sale process and the offers that have been received since the Group commenced the sale process for this asset. The Group also considered thefinancial model that was prepared for the Project. This model is subject to variability in key assumptions including, but not limited to, gold and silver prices, currency exchange rates, discount rates, production profiles and operating and capital costs. A change in one or more of the assumptions used to estimate the recoverable amounts would result in a change in the CGU’s recoverable amounts.”. and that “In developing the estimated recoverable amount for the Project, the Group has primarily considered the results of the sale process and the offers that have been received since the Group commenced the sale process. The Group has considered that the best evidence of an asset’s fair value less costs to sell is the prices included in the offers received by the Group, taking into consideration the nature of the offers received (binding, non-binding, indicative or final) adjusted for incremental costs that would be directly attributable to the disposal of the Project.”
Whilst, silver prices have ran up nearly 100% since the asset was impaired to AUD$ 27m, we are receiving an upfront cash component around that amount.
I would also like to quote Peter Alexander's letter to shareholders in 2017 when Metal Tiger Plc was looking to replace the board. At the time, Mr. Alexander said "Kingsgate's future does not rest on the outcome of legal proceedings. Kingsgate's future rests on the development of Nueva Esperanza which Metal Tiger appears to have little interest in pursuing." see:
https://www.asx.com.au/asxpdf/20171218/pdf/43q8f3rynxs1n6.pdfThis is the same Peter Alexander who is an 'independent' director that was also the former Managing Director of Dominion Mining Limited. One can assume he was instrumental in the merger of the two businesses. Ultimately, Kingsgate will recover a fraction of what they paid for the Dominion assets.
As I said, I still hold out hope for the deal, but would like to see management on the front foot here. Perhaps there are other alternatives for Nueva Esperanza.
(20min delay)
