The problem is that even though they are growing they just aren't showing decent ROE so what is the point of opening new stores? Maybe they have some efficiencies coming with the new warehouse and spreading overheads over a larger store base but I can't help but think this should trade close to book value given the poor operating performance.
Companies always do a lousy job of discussing covenants. I've been spitting angry at other distressed firms that don't lay things out for common investors. In my mind this information needs to be put directly in the quarterly regulatory documents with detailed explanations of the calculations.
Here, you have a company that everyone knows is at risk of bankruptcy. Why wouldn't you put out information on what you have to do to avoid violating covenants? NAP's covenants aren't particularly difficult to follow so I'm not really angry here.
I can see being angry about continually missing targets. They should, in my mind, move to providing ranges of possible outcomes because right now they have now indicated that they are falling short yet again without any idea of how big the problem is.
Good point regarding the "relaxed covenants." I assumed relaxed but for all I know they are tightened.
The financial covenants in the "old" loan from way back in June were as follows:
Senior debt to EBITDA. 8 to 1 beginning in second quarter and stepping down thereafter to eventually reach 4 to 1 in second quarter of 2015.
Minimum EBITDA for trailing 12 months of 0 for Jan, $10M for Feb 2014, March 2014.
Minimum equity of $200M.
My guess is that they pushed back the deadlines as they are having trouble ramping production.
Paying $8.1 million loan commitment fee. For that they get $21 million at 19%/15% and relaxed covenants. The existing covenants were not terribly tough. Will be interesting to see what they are now.
No. They would get financing upon filing bankruptcy and the assets would eventually be auctioned off. What the proceeds of such a sale would be I don't know.
Bankruptcy would involve significant professional fees as well as litigation. It could certainly happen but it seems unlikely unless they run into significant operational problems.
SWC provides data by mine. I've compared it before and the quality of the resource (assuming they are correct) was quite a bit better at SWC. It is an important issue and I'll try and post something on it early next week.
I've wondered if there would be any operational efficiencies should SWC actually get the Marathon project going. I tend to think they wouldn't be all that material but there would be some. Perhaps it is something that has been discussed here but I've not really followed things close enough or know much of anything mining.
I can give you at least four reasons.
1) You are ignoring losses for September and December quarters. It seems reasonable (although not assured) to assume that reserves are o.k. but their expenses will be very high and bookings low.
2) Management credibility. They were very smooth before any problems were brought into the public sphere. Would encourage you to read some of the old transcripts and review investor presentations on their web site. They were pretty optimistic when share price was at $20 a share. Why would you trust them now?
3) CEO. CEO who sold shares at $10 a share is still there. He is in full control of the BOD and there does not appear to be someone new coming in.
4) Breakdown in internal controls. Normally, I think internal controls warnings are really not too concerning but it will take years, lots of expensive investment, and a totally new management team before this is really under control.
5) Legal costs. They say that the costs cannot be determined and the lawsuits will fail in any event. Do you really believe that? Also, how come they have not indicated what their D&O insurance is?
6) The thing frequently didn't trade at book value when times were supposed good so why should they now?
Should add that a preferred issuance with some severe limitations on future company actions is also possible.
Unless you have access to information on production that isn't public I would say you are jumping to a conclusion. I don't know how their production is going or what their prospects are beyond what management says but I think they can raise funds with subordinated convertible debt maturing in six months.
The BAM loan carries an interest rate that is effectively 19% That means they have to pay substantially more than 19% to get someone to take on that risk. They can't very well issue a six month note carrying a 50% interest rate so what they are going to do is issue debt carrying something that sounds more reasonable with an equity kicker of some kind that allows them to pay an extremely high rate of interest. If it works out, they make a good deal of money, if it doesn't work out at least they stand in front of the equity holders. It is cheaper than merely issuing equity.
If the mine is obviously uneconomic, then yea they die but if that is true I fail to see why this company still carries a $100 million market cap. It should be much lower. If they don't want to do the subordinated debt with an equity kicker of some kind, they should be able to issue straight equity which would obviously dilute shareholders.
They don't have to pay BAM back anytime soon. They will live for at least another year unless they run into production problems.
That is a fair comment. A few of the people at Best Buy were not in the pre-order line but most were pre-order while Game Stop didn't have any pre-order people in the store. Couldn't tell you why Game Stop customers didn't show up at 10 while Best Buy did.
No that really isn't right unless the mine development is going so poorly that it will never be economic. They can raise the funds if the mine operations are o.k.
If nothing else, they can do a subordinated/convertible loan that matures in three to six months that contains provisions that don't allow for additional issuance of equity or debt without repayment of the loan. Kind of toxic in nature but if the mine is generating cash at that time it can be refinanced. If it isn't generating cash at that time, it might as well be put into receivership.
Insider selling and company buying back shares is questionable from an ethical perspective in my mind. I closed out my short as I don't see how it is possible to fight a situation where the company is prepared to buy back shares but I do think it is garbage and will make the ultimate collapse that much worse.
They should plow any excess cash flow into dividends and let the share price fall wherever it may.
Going up to the nosebleed levels was crazy but what can one do? They are buying back shares at these levels so it seems like it is unlikely there will be any further moves down until the ultimate collapse hits.
Thought he was saying double the position and sell half. That wouldn't be subject to wash sale provisions. In retrospect I read too much into what he said.
Wouldn't have thought they were that desperate for cash but those Latin American receivables sure do suck up a lot of capital.
Assuming a $20 million loss in fourth quarter that leaves them with around $3.07 book value, $2.68 tangible book. Rough calcs but probably just a few pennies too high.
Well, I don't know that I would agree that focusing on South Africa, Russia, or PGM pricing would be a particularly good idea. When senior management has a fully operational mine producing product in an economical fashion they can do that but to focus on that when significant operational and financial problems exist it indicates a desire to be carried along by higher prices or a narrative rather than operational excellence.
Longer term, supply adjusts to demand. If PAL can't get their costs down, they will die.