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Unsurprisingly, there is considerable speculation regarding the ultimate fate of Horizonte, i.e. whether it will have to go into administration or whether Horizonte will find a solution to complete the project.
Administration: The receiver needs to obtain the best possible price, considering the creditors in following seniority, Government, Lenders, staff, and then equity holders. Further speculation has been that if the company goes into administration, the lenders will deal with Glencore or a consortium of the cornerstone shareholders to pick up the project for a low value.
RNS advise that USD 131.2M of the senior debt facility is available to draw on, assuming that specific criteria are met. This infers that 215 million of the 346 M facility has been drawn down. HZM also advise that $429M has been spent so far. The spend is, therefore, split roughly 50/50 debt and equity holders. The three cornerstone shareholders hold approximately 50% of the stock, inferring they stand to lose over $100 M on the administration route.
The banks will look to make themselves whole on any sale of the assets. Consequently, they will be looking for $215M as a minimum and will resist any haircut. Therefore, any new buyer must come up with $215M, + 136M + 200 M or $551 M to finish the project. The big 3, would have to add their equity losses to this, consequently a further 100M would be added to their contribution. To mitigate this, they would look to the lenders to take a haircut, The lenders will be resist this. Assuming it is refinanced on the same basis as now, they would still need to come up with another $220 to finish the project. This would give them 100% of the P&L.
However, if they were to have a 3:1 rights issue at 30p, it would be oversubscribed. They would only have to put $100M and maintain their current equity share.
My point is that unless the banks are prepared to settle at a significant discount to their current loan value, there is little value to forcing the administration route. Glencore already has the offtake, so that doesn’t enter into the equation. my own view is that this stock is worth holding, at 10P its definitely a buy
I hope hzm are looking at other options eg selling a chunk to a competitor ..rather than just relying on the holy Trinity to bail them out.
We can expect the feasibility study soon...which is a shame as the uplift in sp won't be great.
I wonder if they could sell that to raise cash.
It is a xxxx show....is the cost typical of one of these projects ? Or have they just been frittering away cash?
If it went into administration, for a default or similar, it would just be the parent company going into administration, the asset holding subsidiaries wouldn't.
Most likely scenario would be a restructuring process, funds raised and completion of the construction.
The only thing missing would be HZM plc shareholders as their shares would probably be cancelled from the exchange and worthless.
So we are holding shares in a company not possessing the asset?!?
Mumbles, I like your reasining and I sincerely hope you're right. One worry I have is WE DON'T KNOW THE COST OF THE OVERRUN. So I'm speculating the reason terms couldn't already be agreed is, it's a big number, or the parties need to do the due diligence to check it (I get the latter point, especially if it is a big number).
But I do think the fact that the market doesn't know what the number is is making the market very nervous = 10p shareprice. If it's $200 or $250m and all parties sign up to that number, we can maybe hypothesise a solution. What if it is (playing devils advocate here) $500m? What's the route then?
I think part of the problem is the overrun figure Horizonte have determined (or not yet) hasn't been published. When/if it is, people can start to make educated guesses as to how the company can pull this off with the cornerstones.
By the way I want it to succeed by god I do. I didn't buy it and hold it since 2018 to see it all go down the pan right now.
So if i understood this (and thank you all for the lessons!) a 3:1 rights issue on half the shares is a 5 fold dilution.
Meaning if that were sufficient to complete the mine and roughly take the current stock back to £1.40 say, that means a current price of 28p factoring in the dilution?
So roughly 4x from here with those 2 big IFs:
Indeed the moneys to raise is 30p a share.
And the rights issue ration being 3:1.
Not bad nor grand...
Mv01, page 75 of the annual report, shows the eleven subsidiary companies 100% owned by HZM plc. (known as the group)
The assets are 100% owned by a subsidiary company.
It's standard practice for the plc to be the parent company with subsidiaries holding assets.
HZM plc 100% owns the subsidiaries, HZM plc shareholders do not.
MV01, usually a share issue would be based on the total number of shares. ie HZM case with approx 250 mill, a further 750 mill would be issued (at 30p, this would raise $225 M) and would amount to a 75% dilution. Not ideal. It would also need an EGM to authorise the additional shares. it has been suggested that some equity in the operating company could be sold, as HZM own 100% of the equity, up to 49% could be sold to raise additional capital without losing operation control. this would reduce attributable cashflow to this project, but would leave the other assets intact. or even a rights issue and a partial asset sale to reduce the solution. The point being that administration is a last resort for all parties. if the lenders beleive that there is a realistic chance of the a solution being found, they will release a limited out of funds to continue on a care and maintenance basis, as it is in their best interests to do so.
You also don’t very often find all the representatives from 5 international banks and 3 high power financial institutions/mining companies being bothered to be “entertained” flying to Brazil to get their due diligence ready to bring back to the table if they are all seriously thinking about an administration scenario.
The effort is going in to make this happen NOT administrate it.
Why even bother otherwise
These are businesses that have already invested a significant sum in this project and now they are being asked to contribute more.
No doubt they will be doing extensive due diligence before making any decisions.
The bottom line is, these business people will always do what's right for their own company's interest.
Yep-another negative slant response
Almost predictable-lol
Shareholders own the parent company and the parent company owns the subsidiaries
That's correct and do you know why shareholders own the parent company and not the subsidiaries.?
It's a legally separate entity, that when the parent company goes into administration the asset doesn't
Beneto, it might be a legally separate entity. But it has an owner, in this case it is Horozonte, which is an asset that needs to be liquidated
Bibente, the reason why there is a legally separate entity to the holding company is because it has to comply with a totally different legal jurisdiction with different fiscal regulations that need to be ringfekced within the jurisdiction within which it operates. Of the owner goes into liquidation the asset is sold
What an idiot, this is just a standard practice setup.
The parent company goes into administration and the subsidiaries are legally separate as this would enable the assets to still operate during the Administration process.
Most likely a restructuring process would occur thats agreeable with the creditors including a fundraise.
Otherwise it's an asset sale.
In this case there' also secured debt against the assets.
This process would leave little to zero return for HZM plc shareholders.
Bibente, why are you name calling, this is a discussion forum.. Firstly I agree it is a standard set up. I also agree that if a HOLDCO goes into administration, the OPCOs can continue to operate for as long as the agreements continue to function. So i actually agree with your points, but it doesnt make the points i make any less valid. None of these companies are set up as a separate legal entities purely as a protection in the case of insolvency, although that is one of the considerations, but also for practical considerations that are outlined in my previous.