What company telling us with the progress reports?
Today (Wed. the 3rd) there was another press release. This one told us about the rock analysis being done and its function in mine design and safety. A few days ago we got a report on the environmental permitting, and the company hired to take it forward. Prior to that we received a biographical report on the new COO, assuring that he would be able to handle all technical hurdles.
What is the purpose of all these reports. I think it is threefold:
1. To reassure current and prospective shareholders that this crew can, and intends to, construct a mine.
2. To provide the same reassurance to potential lenders.
3. Perhaps most importantly, to inform investors and funders of the long and difficult pre-construction work that must be done.
3 above is important for investors and funders to understand because of the perceived competition between Prospect and Passport to be first to market. What Passport seems to be saying is that, in the first place, Prospect has shown no interest in taking those tedious but necessary steps; secondly, even if Prospect sells out to another outfit, the successor would have to go through the same steps that Passport is now going through. That puts Passport way ahead in the perceived race to be first with potash production in the Holbrook Basin.
In sum, there are lots of steps to be accomplished before a mine is built. Passport is going through those steps now. Nobody else (at least as far as public knowledge is concerned) has even begun. That de-risks Passport and makes it very likely that it will be the first with a mine. And that gives is added value.
Your insights are appreciated! What is your view of current capital situation, funding requirements over the next 2 years, and how they get the money to keep things moving ahead (ie. what they will have to give up to get there)? Thanks.
They need about $15 million this year, another $15 million in 2014, and another $15 million in 2015, I figure. In addition to that. They will need $1.9 billion for capex.
The steady and professional march toward construction--COO hiring, land package improved, permitting, rock analysis for mine design and safety, etc.--should benefit financing efforts. I do believe they have leads on financing sources.
Dilution is the biggest threat. There are currently about 200 million fully diluted shares outstanding. They would need at least another 225 million shares if they financed just the portion up to the capex (not including capex) with equity. That would be 525 million shares outstanding. The net current value (per the PEA) is $2.1 billion, or about $2 per share at 525 million shares out. Not bad--a ten bagger from here.
The capex will have to be debt. It is way too high for equity financing. Perhaps the off take partner would finance the capex and take the potash as repayment of the debt. He could still get interest at, say, 10% and roll that into Passport's potash obligation.
Another alternative would be a joint venture for the debt coverage from the partner.
There is a huge, almost certain, payoff here but the financing is the tough nut to crack.