While not too much equity dilution the overall package is very,very expensive.
Basically they replaced a 6.15 % $70M due in 2014 with with a $130M loan at 15% due in 2017. That’s a net increase of $60M which is what we have estimated they need to complete Phase I. That is a huge INCREASE of 15M in interest a year.
PAL interest expense is now in the 20-25M/year range. PAL can defer the interest payments for two years but the rate rises (retroactively) to 19%. I guess this is because all involved realize there is now way PAL can pay that amount of interest until the 2015 target of 250K oz and under $300 cost becomes fact.
As for the 20M or so flow through shares at 2% premium Brookfield got a great deal also as FT share are usually 15-25% above market.
Extending the LOC adds no working capital as the line is fully drawn anyway.
Analysts will crunch the numbers and reduce earnings estimates. IMO PAL is dead money for at least 12-18 months. Holding 1.00 may be a problem.
Quotes from bellbell63:
bellbell63 • May 17, 2013 9:56 AM
You still dont get it. PD doesn't matter, SA doesn't matter, autos dont matter right now. All that matters right now is PAL financial state and the hopefully upcoming financing. The only plus of Pd going up is that it would make PAL more attractive to an acquirer who has the money to get to 2015.
bellbell63 • May 15, 2013 8:01 PM
The issue is not the next 12 months, it is the next 60 days.
bellbell63 • May 13, 2013 9:56 AM
Disagree. PAL is "too far gone" only because of the financial issues, not resource or mining issues. I agree with BB, that SWC takeover makes sense. All in all I think it is the best thing for the PAL stock holders vs the alternatives. Sad and disappointing PAL cannnot get to 2015 on its own. While it makes sense IMO SWC BOD won't go for it right now. Right now I expect the are fighting about what kind of donuts to buy for the BOD meetings. IMO the BOD is philosophically divided, just as the Reps and Dems, and until they (both) realize they only way to move forward is to work together nothing will get done.
Wew, sounds to me like PAL pulled of a miracle getting the financing needed to operate until 2017! I thought they were going BK in 2 months? You had to know any financing they would get would be in your words "expensive" given their financial situation.
Here is the big picture now: PAL now has the cash and the palladium underground in a stable political region with a very favorable economic supply and demand picture ahead of them. We know the Russian stockpile is gone or nearly so. We know SA is unstable and unlikely to resume full production any time soon - if ever. We know auto is picking up in China, India, and the U.S.
The real question any investor needs to ask themselves here is whether the new management team led by Phil du Toit can execute.
Very right! the question is will they deliver?
The shaft sinking is almost at 825m as we speak...they will reach it next month in my opinion. They had some delays in the stopes but it is still going well, then it is very probable that the Phase I will be delivered in time with the 3,500TPD in full by Q4 2013 or Q1 2014?
This is perhaps over 200koz of palladium at lower cost or even 220koz per annum. Palladium is at 750 now and should reach 850 or more when Gold will rally again.
Many positive right now...
PAL is setting the stage for a buy-out in my opinion. The product is now ready for sale!
This news was enough to scare me off of buying this company. Unless it hits bargain basement pricing in the 60-75 cent range, I am not touching it!
15%? Really? They must be desperately need $$ to agree to that interest rate!
No doubt that the interest rate is pricey. It will help if palladium prices co-operate as I believe they will.
But weren't you and most of the rest of us expecting a more dilutive deal than this? I believe the the stock price prior to the announcement incorporated a more dilutive expectation. Price could well go below a buck for a little while, while the nervous capitulate. Dead money for 12-18 months, though? I don't see that.
What do you make of the statement, "Our ongoing review of our strategic mine planning has identified potential alternatives that may allow us to defer Phase II capital spending without compromising production growth."? It sounds like they are adopting your recommendation, though more needs to be said about this.
I am expecting to hear more about NAPs development plans soon, perhaps before the first tranche.
"But weren't you and most of the rest of us expecting a more dilutive deal than this?"
Well it depends on how you define or calculate dilution. EPS is earnings/share. DIiution (reduction) of earnings per share can happen by either increasing outstanding shares or decreasing earnings by larger interest payments. They have added about 15M/year in interest cost (or about .09/per share). That is considerable dilution - much more than the 20M FT shares.
Although a foward looking statement, it sounds like the review they are doing is not yet complete, but it looks like some possibility on deferring phase 2 capex a bit, which, imo, good news. Hope he is being forthcoming, unlike previous management.
Yes, financing came at a cost but it was the only way to be able to complete the Phase I with certainty and avoid a dire financial situation down the road, then it is a positive.
PAL pps is establishing a base and it will be around 1. I said that a fair value is about 0.90 to 1.10 and we are just in the middle now.
Today was an EXCELLENT day for traders like me because sold out and was able to buy back and lower my average around 1.09 now on about 14k shares. After some day trading too...
I still want about 30k shares but would like some at under a dollar if I can again. The last time I was able to buy at 0.965.
It will take a time to crunch the numbers but you can see now that PAL is not going bankrupt anytime soon. The question is to accumulate slowly and not searching for a bottom. But palladium is about to get more expensive and we may see 850 end of 2013 or 2014 and even more...the extra interest will appear nothing then.
Specially when we will be close to 200 250koz and a cash cost at barely 300...
I believe that the question of a take-over or a JV is still possible also down the road but SWC may have lost it? or maybe PAL was not inclined to accept a low offer after spending 330M so far plus another 60M in 2013 and 13.5M in 2014 for Phase I.
This buying frenzy and then selling frenzy is hard to understand...Where these thousand and thousand shares come from? Short covering was possible initially but then after?
Another day at the office...and I expect PAL to be the same cash cow as usual.
What is your trading?
"the extra interest will appear nothing then."
Well, not quite nothing - if prod is 250,000 then 15M is about $60/oz. That eats up over half of a your conjectured rise to $850. I don;t consider that nothing.
Are you planning on cutting your losses and moving on? I felt that this was a good news event when compared to the alternative of BK. Under the circumstances that they faced, they got the deal done mostly with a debt offering, which most us us thought would be immpossible. I am planning on holding, and am now open to averaging down below a buck if it goes there.