Post by
15Stanmore on Nov 17, 2020 1:07pm
Time to Reward Shareholders - Plan B
OK, so we agreed that expecting a Company on a rapid growth path to reward patient and long suffering shareholders with a small regular dividend was asking too much and the funds would be best left in the Company to fund further growth.
How about a Plan B to provide shareholders and the Company with a win-win proposition?
Back in 2009 the Company hired a consulting engineer (Ysao Munemassa) to scope out the deposit that has become the mother lode of the new Verde Agritech business. Part of that consulting arrangement saw Ysao Munemassa being granted a a 3% royalty on the net smelter returns that might arise from the deposit he was being hired and paid to explore. Verde Agritech retained the right to purchase the royalties due to Ysao at a cost of US$1,000,000.00 for each 1% of the protected right of royalty owed to Ysao.
Fotunately, it turnd out that the Company was able to settle this outstanding royalty in 2014 for pennies on the dollar, and no obligation remains from this royalty commitment as of today. It is this still untapped 3% net smelter royalty arrangement which I would suggest be the basis for a transaction to allow existing shareholders of NPK to participate in the acquisition of this royalty and the immediate and ongoing royalty income stream that would be paid under its terms.
Based on the agreement entered into by Mr. Veloso in 2009, the 3% royalty was given a net present value of $1,000,000 US for each 1%, so $3,000,000 US in total. This is about $4,000,000 Canadian today.
In a non-brokered deal (no fees or commissions to be paid to any third parties) Verde would grant every shareholder a non-transferable option to purchase their pro rata share of the proposed Royalty Interest based on their current shareholding. Assuming there could be shareholders who would not wish to make any further capital investment in NPK and would not exercise their options, interested shareholders could subscribe for additional participation in the Royalty Interest, again distributed on their pro rata share of all such additional participating interested shareholders.
With about 49 million shares currently issued and outstanding, each share would be entitled to a 1/49,000,000 interest in the royalty for the payment of 8.163 cents. A shareholder with a 100,000 share position would be able to purchase a 0.2% interest for the payment to Verde of $8,163. Mr. Veloso with 8.8 million shares could buy an 18% interest for just over $718,000.
In Q3, if we assume the net smelter returns equate to the gross margin (Product sales less cost to produce the product) of $2,640,000, then a payment of 3% of this amount would be paid to the Royalty Trust for distribution to the participating shareholders. This would have been a modest $79,200 or an equivalent to $0.001616 per Verde share. If you annualize this to $316,800, this would represent an equivalent financing cost to the Company of 7.9% for the $4 million they received in return.
On this back of the envelope calculation, the Company could raise $4 million Canadian at a cost of borrowing of less than the current "favourable" bank loan rates (> 11%), which does not need to be repaid. In time as sales grow, the royalty would grow considerably and well reward the shareholders who took advantage and exercised their options (and likely their ability to acquire unclaimed additional interest).
The Company could then use the $4 million just received to repay the existing bank loans and avoid having to take out new ones which strip funds in interest payments that would otherwise be available to shareholders.
This financing would go a long way to fund the phase 2 implementation plans without adding any debt to the Comapny's balance sheet, at rates less than the bank would charge.
Can we please have our fiduciary board members discharge their obligations to put the Company and its shareholders ahead of any other interest and give this reasonable and attractive win-win proposal the consideration I believe it deserves?
Can I invite other shareholders to comment and critique this conceptual proposal?
Comment by
sparkdog on Nov 17, 2020 4:08pm
I used to skip in curling...won many a game with "plan B". I like your proposal.....a lot.
Comment by
Sugoioi on Nov 17, 2020 6:20pm
This resonates with me, I think it is an excellent proposal.
Comment by
MikPrecious on Nov 18, 2020 9:49am
I don't see management agreeing. I do believe dividend is a good idea through the use of shares like the way Cris pays homself nicely. My horizon is still some growth but $1 or slightly above for 2021 and for 2022 $1.50. It is indeed a slow moving train but at least it's moving toward the right direction.