thoughts

Arc is in an interesting position right now.

They are at the mercy of ANZ, although ANZ are also at their mercy.

ANZ have the option of shutting them down and putting them into receivership.

What do they get if they do this?

They kiss good-bye to $63,000,000 in debt guaranteed by Arc that they would have no chance of recovering (no-one wants a rusting gold mine).

They kiss good-bye to 40% of a listed company that they currently own.

So - sending the company to the wolves is not in the best interests of the main financier - as they lose on two fronts.

Officially however to sell the gold mine, someone farming in (even if Arc ends up with none of it) would have to pay about $40M to get it into production as well as taking on the $63M debt to ANZ. $104M project debt in this environment is why this has not been sewn up as yet.

So, it comes down to how much can ANZ write off? The more they write off, the more the shares are worth and the better deal they can strike.

So - shareholders are ironically in quite a good position for such a sick company. If ANZ tries to maximise their recovery of debt with Arc getting none of the gold mine they shoot themselves in the foot from what their company stake is worth.

There will be internal requirements however as part of their risk management and requirements to not encourage moral hazard to not write off too much of the debt.

So, where does this leave shareholders?

My guess is that a deal will be struck that will write off a significant amount of the debt ($30 million?) with good terms to whoever takes the gold mine over (existing debt tied to the gold project rather than the company so if there is a disaster it is not company debt, to be paid back with actual production) and a 5-15% stake as the residual to Arc.

This maximises ANZ's 40% value of the company and gives them a good chance of recovering some of the debt.

Something has to happen very soon however as the company will have to go into VA if they chew up too much money - they can't raise more money, can't get finance and have very limited funds.

Definitely fits into the "high risk, high reward" category.

Good entry point (particularly under 2 cents) for anyone who could stomach their shares being worthless in January.