I think that dividend probably be cut again shortly -- too much a cash flow risk otherwise. Not sure what the repayment schedule is on the $300M Tropicana loan exactly, but the announcement says three years maturity. Tropicana will only provide up to half that at current gold prices, and even if gold prices rise, the hedge book will eat some of the difference. So that's over $150M extra they need for principal over the next three years, plus say $20M for interest. That looks like it will eat around two thirds to three quarters of Duketon free cash flow. Also, as discussed on other threads, they have to increase the rate of delivering into hedges under the contract with MBL.
So it looks like there is a margin of safety, but not a great one. Given the disastrous consequences of not being able to repay that debt, I feel it's likely they will cut the dividend as a precaution.
Thinking about it, this means there is no way they can fund McPhillamys construction in the next two to three years without raising another $400M. And given their existing cashflow is already spoken for in the next three years, finance is not going to be cheap. Which suggests another massive capital raising.
So the argument that this would help fund McPhillamys doesn't even make sense when I think about it. The whole arrangement will be cash flow negative over the next three years.
How amazingly quickly the outlook for this company changed!
Maybe I am missing something here: it seems a little more dire than I thought. Definitely happy to be corrected.
RRL Price at posting:
$2.60 Sentiment: Sell Disclosure: Held
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