RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Question? And be nice on your answers! Great post as usual thorgb1.
Sorry to state the obvious but there are only 4 options here.
1. A buyout.
2. Lundin's deal goes through.
3. We get a loan and exercise our first right of refusal.
4. We do an equity financing and exercise our first right of refusal.
I guess you can throw in 5. some combination of 3 + 4.
Not quite binary, but manageable.
My wish is for a buyout. I believe a buyout would likely come in between $9-10 plus a share of "new" Resevoir which would hold $32million (62 cent per share) in treasury along with presumeably all project except Timok. So when the dust settles we sit at $10 and change likely. A nice kick from todays close but also freeing up money a lot of us have had tied up for 3 or more years. There are always plenty of places to deploy money, so I'll take the bird in the hand here first over two in the bush.
That said, if we get no bites from RIO or other potential suitors, I think we have a bright future here with our two birds and I will be more than happy to continue holding.
I don't think there is any chance we do a debt deal. I don't know what lender would give us the cash pre bfs in this mkt especially given our relatively low mkt cap. A wild card might be our friends from China but I think when you really break down the situation it doesn't make much sense in the grand scheme of things. Reservoir is a prospect generator, we bring very little to the table when it comes to mine building. So I see little benefit to becoming the sole owner of the high grade from a pure intellectual "can do" perspective not to mention the lack of financial means to build the mine.
For those same reasons I also don't like the equity finance option. Again, given that we don't have the expertise to build a mine or the money to fund it, diluting ourselves so we can hold a property in hopes that market sentiment changes positively in the coming years allowing us to sell it off doesn't feel overly prudent to me. The only thing that scares me is given the banking fees on a deal of this size, you can be assured that Cormarks-Canaccord's-Dundee's of the world and possibley the big 6 banks are wining and dining us. I trust Simon and the team will do the right thing and send them packing.
The last of the four options is to stay pat and let Lundin in. For me, this is the way I want it to play out if as I said above, we don't get a buyout in the next two weeks. This would be a huge deal for Lundin who are already on record as saying they plan to fast track the project. Almost as important as fastracking is that Lundin will instantly create a narative of Timok and sell their very bullish vision of things to come to the investment community.
Apart from the occasional mention of Serbia being a "greenfield" investment for them Freeport never ever mention Timok. No doubt they kept the project in the dark as best they could as they held designs on taking us out at some point. Obviously things changed quickly for them with the collapse of oil so shortly after they over extended themselves and now sitting with close to $20 billion in debt, the servicing requirements this year alone had them on the ropes of chapter 11. So they are in sell mode and the first time Timok gets mentioned in a NR from them, is when they annouced selling a piece to Lundin. In other words, they have done zero to educate or promote this project to the investment community.
Lundin has been talking this up from day 1. My belief is we haven't seen anything yet. They have just told the market enough to justify to their shareholders the expenditure proposed. As they don't know 100% that their deal will be completed, their entusiasm has to be muted in order to give themselves an exit with dignity should Reservoir or our possible suitor exercise our right of first refusal.
Should Lundin prove successful we should enjoy the benefits of having an agressive and promotonal partner. I would expect upwards of 10 drills to be deployed immediately and monthly drill results. Since they will be primarily working the hs zone, there will be numerous "highlite reel" monster holes. Given the distinction of Lundin vs your typical Venture Exchange outfit, these results wont only end up in instituitional investors hands but may find their way into the papers and bnn etc.
The point is we will get exposure that we haven't seen to date. Credibility from our partners (FCX and LUN) + plenty of positive exposure + a pretty damn tight shareholder base= bullish in my books. Add a recovering copper price and the sky is the limit, although the jury remains out on the near term price of copper.
So while a buyout remains my first choice, the close second and possibly more fruitful is allowing Lundin to come in and do their thing. I also feel those are by far the most likely conclusions here at the moment. I believe the market sees it this way as well and that is why we are trading at $7.15. As Rick Rule said last month, Reservoir wins or they win. Good enough for me.
Best regards and GLTA,
Buck