As usual Future served up his insightful points and we all piled in. Once more I can't follow that thread anymore, so I am starting fresh.
But first off: hey TJ you are really a crazy SOB and I don't remember ever laughing so hard while watching the market. You have a good time with your Lammie ok?
And Erik, didn't I tell you Jimmay would give you the answer to your question about post-extraction lignite? I don't know what that guy smokes or drinks but he knows that sh*t. And it never occurred to me to think about the possibility of a higher grade coal strata sitting underneath the lignite layer. That was an excellent point!
Finally I'll come to my point: all this talk about the cost overrun related to the mine purchase was confusing everyone including me. And then all that speculation about short of cash, secondary placement, whatever, just got me in a spin. When I finally cleared my mind and thought about it, it was obvious. We know YONG received the $65M from the December secondary offer in cash. But of course YONG is not going to use $35M all-cash to buy the mine. That's a big piece of valuable asset that many banks would be happy to finance for YONG. As a matter of fact, YONG is a premier customer of the local development bank (I don't remember the bank's name) in Inner Mongolia because they gave YONG the first big loan to get YONG started way back then, and YONG has been doing bigger and bigger business with them since. I bet they will fork up the $35M, or another big bank will, given the excellent financial and operating health of the company. YONG will capitalize the whole deal and the cash flow impact would be in the monthly loan service. Depreciation/depletion charges will be non-cash, of course.
Therefore, I am strongly inclined to believe that, despite the much higher price tag, the purchase cost of the mine is not a major concern in terms of cash flow. Now if only we can find out whether they need to spend a lot of money on the equipment and infrastructure. Still, that should be nowhere as big as $35M. And the cost for the plant is already budgeted separately.
There, I do feel better!
think about this.
YONG still can lease mining rights out, with conditions that YONG will get lignite at cost plus YONG will have so-called 'first refusal' rights on any lignite coming from the mine.
Erik you are right, that's a possibility. You know I expressed my disappointment (as did many others, like Lee) that YONG appeared to be getting itself directly involved in the mining business rather than just owning a guaranteed productive asset. I simply do not have enough knowledge in the intricacies of mining operation to guess whether this set up you described is a strong possibility or not. What I do know though, is that if they let someone else - perhaps Shuntong itself - do the work like you said, they will get to production faster.
The other thing I am dying to know is whether YONG has a forecast on their new COGS based on steady-state production of the new mine and plant. I know it is too early to peg it down but there should be a range. If it were a company operating in the states, a huge project like this that can make or break a company would undoubtedly need to have an air-tight business case - with its effect on profit margin as a key component - before the board would approve it. And as a small fry, I would be able to go back to update my calculation for its profitability and esitmated EPS and PPS going forward. Perhaps someone should attend the eventual earnings conference call and ask that question? Hey I am not volunteering.
"because they gave YONG the first big loan to get YONG started way back then, and YONG has been doing bigger and bigger business with them since. I bet they will fork up the $35M, or another big bank will, given the excellent financial and operating health of the company. YONG will capitalize the whole deal and the cash flow impact would be in the monthly loan service. Depreciation/depletion charges will be non-cash, of course."
Ok, class, this is a prime example of what I refer to as self-deluding happy talk. Had YONG had such an easy access to loans 3-4 months ago, I'm sure they'd have much preferred borrowing from the bank over going through a very dilutive secondary to raise that 60M. The fact that they had to go to equity market meant they had trouble obtaining the loans in the first place. And in light of China's desire fight credit risk by scaling back the availability of loans, borrowing from banks will only be more difficult, as many news reports clearly indicate:
"China to Nullify Loan Guarantees by Local Governments"
Direct quotes from the The Lame One’s supposedly devastating link.
“China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly.”
“Su Ning, a deputy governor at China’s central bank, said today that a “fairly high proportion” of total lending last year went to the funding vehicles. Chinese banks extended a record 9.59 trillion yuan of new loans in 2009. Su sees “a big risk” from local-government guarantees for money borrowed to fund infrastructure projects that may not generate returns, he said at a press briefing in Beijing.”
As usual The Lame One did no comprehend what he was reading. Sadly, no surprise there. The article applies to lending to local governments infrastructure projects via their funding vehicles. Nothing is said about lending to profitable business. In rebuttal to what The Lame One is trying sell here, I could dig out several links to news items where China’s leaders are stressing the need to develop rural, and especially agricultural, economy. I repeat one here:
And this guy called me a nitwit. Sheesh!
Secondly, I do not think YONG needs to go begging for any additional funds. Some simple math follows:
YONG secondary: 53 M$
Converted warrants: 3 M$
Reduction in receivables: 15 M$ (conservative, and less than stated by YONG in latest presentation)
Total: 71 M$ (minimum)
Expansion commitment so far:
Lignite mine: 35 M$
Plant construction: 15 - 20 M$ (20 M$ assuming cost overruns)
Total: ~ 55 M$
It seems to me that YONG has at least 15 M$ cash left to use as it pleases. A money pile that should easily cover construction expenses for one measly strip mine. No need for loans or secondary.
Thirdly, I think there are reasons and room to question if YONG can pull off what it intends to do, but those questions should NOT be backed by irrelevant and/or false information. To put it mildly.
Hey Erik you must have had too much to drink. That was JJ, not me, who listed his number of shares and call options.
Look, your 8K shares is over $70k in investment and that's nothing to scoff at. Have another drink pal! Oh, and pass this one to NYPD too.
You guys are too sober. Come on it's Friday.
YONG just raised $69 mil less fees. They have I believe $40 mil in cash at the end of Dec. without the $69 mil less fees. The cash from the warrants should be in the Dec. financials.
Yeah there are a lot of open questions about this acquisition but I would think that management did a thorough due diligence.
Damn, Future you are way too sober as well. Go sit with Jimmay will ya?
Yes I have been a worry wad the last two days, but like Andy Grove (ex-CEO of Intel) said, only the paranoids survive. I am twisting the top off my third Coors Light now. Hurry up NYPD!
you worry way too much my friend!...while one has to be careful and vigilant with one's investments, one has to have a little faith in the company...as Future stated earlier "YONG does exactly as they say they will, and I'm along for the ride"...moreover, short-term bumps in the road on the way to spectacular future growth is expected, and the pain we buy into to make the "pot of gold at the end of the rainbow"....
random nusings: if your going to look under every rock, you're gonna find a lot of dirt!"
You are wise Cool, much more so that this fool. Why am I a fool? The problem with me, as you already know, is that I am WAY overallocated in YONG. We all know that the market can kick your arse severely if you are way out of balance. Therefore I would really like YONG to do well in the near term so I can exit (only partially) gracefully. Don't get me wrong, I feel I know this company very well and truly believe that it will be a big winner in the long term, so you can count on reading my meandering posts for a long time to come lol!
Ed, breeze corrent me if I am wrong here!
Remember those damn warrants. Every warrant sold for a right to buy stock, say, at 2 bucks, will bring that 2 bucks to YONG coffers when converted. And lately, in my opinion, they have converted a lot.
I honestly do not remember the exact amount but I think the exercise price for them were something crazy like $1.65 (remember YONG was trading not much above $3 back then - god if I only bought my big position back then lol!)
And we know about two millions shares or so were shelled out from those warrants being exercised - again, not exact number. So the total that YONG gets from that is about 3 to 4 million. That's my cocktail napkin number. For a much more authoritative calculation we should ask our numbers guru... what say you Future?