RE:PenniStocker I believe all eyes are on AVK, but everyone is waiting to see what the terms and timing of the debt package are before leaping off the sidelines and back into the game: Recall that we didn't see a flood of volume when the feasibility study results were published, but we did see a boom in volume when the ESIA and ESMP were approved by the government.
Looking back to earlier this year, all of us that followed AVK closely knew that we had a solid project due to the high-grade nature of Kalana (3+ g/t open pit!), but were uncertain of when we would get government approval to advance a project?
Management said Q2 ESIA approval after the feasibility results, but I believe other investors were skeptical of the timeline as environment permitting in other jurisdictions takes forever (often several years). AVK Management got the ESIA and ESMP approved in late April (Q2), which is a testament to their experience of operating in Mali and Kalana being a brownfield site. Those that believed managed were well setup to enjoy the lift to nearly 40 cents before news flow dried up.
Getting back to my point, we are all now waiting on project financing, but what do we know? Here are 5 key things we know:
1) The ESIA has been prepared to conform to the requirements of the IFC, the World Bank, and other financial institutions that are signatories to the Equator Principles,
2) Rumours that a lending syndicate composed of alternate lenders (PE) and a French Bank (probably SocGen or BNP as they’re involved in almost all West African francophone project debt deals, including Mali) have completed a positive technical DD exercise,
3) The proposed financing terms are rumoured to have been submitted to each group’s credit committees for approval (and they don’t meet every day, so will take time, and we are waiting on multiple groups),
4) A final short form base shelf prospectus was filed on October 7 to raise up to US$325 million, which means they can do a deal and the stock is free trading in a couple of days, so it will happen fast, and
5) Management is guiding towards a Q4’16/Q1’17 production decision, which means financing needs to be arranged soon.
I think this supports my view that we are in a “hurry up and wait” situation as everyone is watching on the sidelines for financing terms to be announced. AVK is clearly setting everything up to for project financing as they've filed the base shelf prospectus.
I believe we will get the necesary financing due to the quality of the project, low capex, rapid payback, and deep-pocketed shareholder base. I also believe that patient investors today who take on the “financing risk” will be rewarded when the project is officially vetted by the lenders’ DD process.
Another key reason why I think the project will be financed is because of AVK’s largest shareholder, Paul Singer and his $30 billion AUM Elliott Group, owns 61%. Singer co-founded AVK, has participated in every financing since inception, and have never sold a share. Paul Singer is a multi-billionaire gold bug (wish he’d drop AVK on his next CNBC interview) and recently backed the former CFO of Barrick (ABX) on a new mining-finance company called Triple Flag Mining Finance Ltd.
https://bloom.bg/2cg4L8i
Singer has committed to invest US$1 billion-plus in Triple Flag and they are actively hunting down precious metals deals in the US$100 to US$500 million range. AVK clearly fits the profile that Triple Flag is looking for.
If you’ve taken the time to listen to AVK’s CEO (who is close buddies with Elliott), he will ask you if you really think that Singer will let some debt group come in to have first security over AVK after 15+ years of nursing this project along? No, they are likely to be a key part of the financing strategy, both on the debt and equity. And what I like about this is that Elliott will have to consider minority shareholder rights and won’t screw over the equity holder because they are the biggest shareholder.
End of the day, everyone (we included) is waiting for the announcement of project debt terms. Look at all other mining companies and you will agree that project financing is a catalyst as it shows that the project has been de-risked by sophisticated investors and banks that are going to write a cheque for 60% of the capital cost, which is about US$120 million or C$160 million (or 2x today’s market cap).
I also think that in a world of few advanced developed stage projects that are permitted and ready to go (i.e., shovel ready and only constrained by capital), that AVK is a great takeout candidate – comes with a project ready to be built, rapid payback, and unparalleled exploration upside. Remember, other West African and eastern South American gold producers are cash cows at $1,300 gold and have few places to put that capital to work - the time to discover and permit is too long during a bull market.
Hurry up and wait!
GLTA
PS: I also noticed that the market depth improved dramatically today as it was looking really soft yesterday.
| T:AVK Market Book By Price 15:59:40 |
| 1 | 3,000 | 0.255 | | 0.26 | 8,000 | 1 |
| 1 | 15,500 | 0.25 | | 0.265 | 86,000 | 1 |
| 2 | 10,900 | 0.245 | | 0.27 | 64,500 | 5 |
| 2 | 12,000 | 0.24 | | 0.275 | 63,000 | 1 |
| 1 | 25,000 | 0.23 | | 0.28 | 133,000 | 4 |
| 3 | 30,500 | 0.22 | | 0.285 | 25,000 | 1 |
| 1 | 10,500 | 0.215 | | 0.29 | 26,000 | 2 |
| 2 | 11,000 | 0.21 | | 0.295 | 25,000 | 1 |
| 1 | 35,000 | 0.205 | | 0.30 | 66,000 | 5 |
| 3 | 43,000 | 0.20 | | 0.305 | 25,000 | 1 |
| 1 | 10,000 | 0.19 | | 0.31 | 25,000 | 1 |
| 1 | 10,000 | 0.18 | | 0.315 | 26,000 | 2 |
| 1 | 10,000 | 0.17 | | 0.32 | 29,300 | 4 |
| 1 | 10,000 | 0.16 | | 0.325 | 4,000 | 2 |
| 3 | 1,010,000 | 0.15 | | 0.34 | 15,000 | 2 |
| 1 | 10,000 | 0.14 | | 0.40 | 2,000 | 1 |
| 1 | 10,000 | 0.13 | | 0.485 | 40,500 | 1 |
| 1 | 10,000 | 0.12 | | 0.49 | 2,000 | 1 |
| 1 | 11,000 | 0.11 | | 0.50 | 200 | 1 |
| 1 | 27,000 | 0.10 | | 0.76 | 70,000 | 1 |
| 1 | 31,000 | 0.09 | | 0.81 | 50,000 | 1 |
| 1 | 10,000 | 0.08 | | 0.93 | 200,000 | 1 |
| 1 | 23,000 | 0.07 | | 0.97 | 50,000 | 1 |
| 1 | 33,000 | 0.06 | | |
| 1 | 50,000 | 0.05 | | |
| 1 | 24,000 | 0.04 | | |
| 1 | 33,000 | 0.03 | | |
| 1 | 50,000 | 0.02 | | |
| 1 | 13,000 | 0.015 | | |
| 1 | 123,000 | 0.01 | | |
| 1 | 300,000 | 0.005 | | |