As I write this on 5th July, anticipation is clearly building for the coming weeks and months ahead.
So where are we at, what might happen next?
Potential Bidders – reasons to buy
Without naming names, any major PGM mining operation will have taken a look at Monchetundra. With a low AISC of $325/Oz and production cost in roubles, but sales in dollars, it is a very attractive addition to your weaponry compared with equivalent resources in South Africa that have AISC of $700/Oz or more, or North America with AISC $400-$500/Oz. When operational, it will be one of the most profitable mines globally, with soft rock open pit mining offering many advantages over deep pit mining, especially when it comes to Covid19 with segregation of operatives, less power needed and a processing facility already operated by Norilsk a few miles up the road.
It has longevity too, expected local authority approval will see 15Moz available to mine, potential for another 4Moz and then up to 21Moz in the surrounding area. This could sustain a 1000Koz operation for 40 years or so. Enough time to justify a multi billion dollar takeout in 2020.
Two types of Bidder
1. Those who don’t care about the share price – they just want to make an offer for the asset(s) – happy days!
2. Those who care about the share price – the Board will not sanction a large offer for more than 2-3x current share price. The argument being why offer $bn’s when the company is valued at $210m or so.
I’ve seen a lot of discussion about this recently, especially since UBS came on board, presumably on a success fee basis like CITIC and VTB were appointed to examine options. Many people feel we won’t come back to the market, as an offer has already been made. Whilst this is attractive, it could only have come from somebody in the (1) camp – they didn’t care about share price.
Why I want trading to resume
To increase the number of potential bidders! For UBS to work their magic alongside our Board, they need as many companies as possible to be able to bid. If the share price heads to 20p and above, it will enable everyone to justify to themselves why they are bidding. Those interested in buying an asset and those using Market Cap to guide their bids.
Triggers to help Share Price rise
Just appointing UBS will help the share price, it was a clear sign of where things are headed.
Flank Approval – although said to be a formality after MOD and FSB approval, it will remove another doubt and enhance things
Institutional Buying – whether Special Situation funds, wealthy PI’s or Event Driven Global Merger Arbitrage funds, many different entities have now got reasons to invest. With a timeline measured in weeks, the chance of a great return on their investment is looking increasingly likely
Shorts closing – should EUA have been targeted at 4p or 7p, there are many whispers about a few million shares being borrowed. Will need repaying! A small amount in the grand scheme of things but an expensive lesson for anyone caught on the wrong side of the investing fence.
Against this, we will see some selling of shares. I mention this in acknowledgment of the fact some will need to gain access to their cash as a result of circumstances changing since Covid19 came onto the horizon and smashed up 2020. I wish everyone well who has been affected financially, not a nice situation and I hope EUA has made you something along the way.
1-2-3-4 I declare a bidding war
Deserves a mention to close the post, for anyone who hasn’t been involved in a share with a bidding war, just grab some popcorn and enjoy the show. Assumption is that Norilsk Nickel will not allow Monchetundra to fall into a rival’s clutches, but they don’t want to pay more than they need to.
Should we have 5,6, 7 seriously interested parties, they might not have an option. Back in 2007 when LionOre was up for sale, they outbid Xstrata twice. That was a two horse race, yet share price increased significantly for shareholders. More bidders will mean more rounds of bidding. The kind of thing best handled by a global bank with experience in such matters, exactly why UBS was brought on board…
They don’t buy often, but when they do, they make sure they get the asset they want. Hence I will stick by my predictions below, good luck to all invested.