RE:The Big News today...It's also important to remember who Li Ka Shing is...this guy has extensive relationships with the Chinese Government, and likely wanting to have his hand in their pocket as nuclear power becomes to focus of the Chinese Government in the coming years. CGN and Li Ka Shing could easily become partners in developing the PLS district, and I'm sure this has all the makings of a control and conquer move by the Chinese Government to lock down the PLS region.
In any case, both FCU and NXE will be bought out.
quakes99 wrote: Good morning all. Nice to wake up to some good news today for both NexGen and the future of a new West Basin Uranium District, not to mention the Uranium sector on the whole. Bodes well for the future prospects of both NexGen and Fission, and many other Uranium exploration plays.
I'm waiting to see what the Analysts have to say about the deal but, from first read through and some initial investigation, here are some points to consider:
1. The CEF Holdings Ltd. Strategic Loan is for US$60M (CA$78.6M at today's exchange rate) with 7.5% interest that is US$3M/year in cash for 5%, and US$1.5M worth of NXE shares per year.
2. The $60M loan can be repayed by cash or by issuing 26M NXE shares at US$2.33/share. At the current NXE issued share count of 334.5M shares, that represents dilution of about 8%. If the loan goes full term (5 years) then an additional 3.2M shares of interest would be issued, bringing the grand total to around 30M shares, which represents 9% dilution. So, if CEF eventually takes repayment entirely in shares... they will end up a 9% shareholder plus a cash payment of US$15M in interest.
3. The risk in the investment is mostly taken on by NexGen and its current shareholders. NexGen will acquire a CA$78M debt that, depending on changes in US Exchange rates, could grow or shrink as it matures. Either way, current NXE shareholders will be either diluted by 30M shares +20% of the 30M shares issued as Options under the proposed 20% Option plan = 36M shares = 10.8% dilution... or will end up on the hook for paying back the US$60M + interest. CEF put up the money and are basically guaranteed to make money no matter how successful the drilling is from here. For them it is simply a loan that pays them interest, with the addition of significant discovery upside potential no matter what happens with the Canadian dollar.
4. If the drilling expenditure of the US$60M increases the value of Arrow by converting the current 100% Inferred to Indicated then NXE shareholders should do well, especially if U prices rise. If the infill drilling is not as successful as many are expecting, then the 10%+ dilution or $60M debt could weigh heavily on existing shareholders. Curyer, on behalf of NXE shareholders, is the one taking the gamble, while CEF is not.
5. CEF Holdings has no direct interest in taking Arrow into production. They only want to make money through their loan and discovery upside potential... and could simply walk away when they have made their bundle. However, they have deep pockets that could provide funding for construction of a new Mill on the West Side (which would be fantastic for Fission as well) and help move Arrow towards being a producing mine, if CEF sees a money-printing opportunity a few years from now.
6. This deal puts NexGen in the same position as Fission... essentially no additional dilution for the next few years. Both companies now have sufficient cash to prove up as many pounds of U3O8 as possible which increases the overall potential for the new West Side Uranium District at Patterson Lake. That's a strong positive for both companies.
7. If, indeed, CEF ends up providing the financing for a mill and infrastructure on the West Side, then that could have a significantly positive impact on the NPV of PLS. If the CAPEX for a new Mill is removed and replaced with Toll Milling Fees instead, then we could see a major increase in the NPV, and much lower risk for the PLS project. In essence, NXE and CEF could be a major risk reducer for Fission's development of PLS into a mine... which would also provide a boost in its Takeover value to a major.
8. How this Strategic Loan will affect the Takeout potential of NXE is unknown. I'm hoping some analysts will provide some commentary on that. An acquirer would be looking at assuming debt... but that debt level will be pretty small in the grand scheme of a $1B+ takeout. There is nothing in this deal that reduces the project risk for Arrow, though, imho. Without an Offtake Agreement, the risk remains the same to a major producer considering an acquisition.
Those are some initial thoughts.
This could be a good signal to other U investors that a West Side Story is gaining momentum, and that Uranium is a good investment bet at where the U market sits at a base-building bottom. In any event, new cost-sharing possibilities between CGN/FCU/NXE/CEF add more fuel to the West Side fire... and, in my opinion, given current share prices for both companies, FCU has been handed even further upside potential. Both plays should do very well in the long term.
Overall, seems to be great news with many positive benefits for investors in FCU and NXE, imho.
Good luck to all!