Post by
74volfram on Mar 01, 2015 3:26pm
Critical Point
With feasibiity out of the way, technical uncertainty is replaced by financing uncertainty and possibly issues of Canadian vs. Korean control of the mine. Macos and GG are right a monkey should be able to start this mine. But in reality at this stage things always become complicated and more difficult to assess and resolve. It is critical point and things are happening fast.
I spent a couple of hours coming home over the weekend to put down some thoughts additionally to last couple of posts. trying to look at this as a technical business and I am optimistic that a positive for all solution will be reached, but other talents may be needed to fully understand the situation. all usual disclaimers apply and please feel free to add or comment.
Feasibility vs. Construction
Once final feasibility is completed (resources, process and cost estimates validated to 43-101 standards and preliminary design) which now it is, the detailed design/plan needs to be done (ready to build drafts for process, structural, mechanical, electrical, plumbing, water, road access and so on).
- Final design and planning is not breaktrhough work but needs to be done professionally above feasibility level, and it is not exactly cheap. It is considered to be part of construction. Woulfe would need to secure project funding well beyond the 150k bridge loan before committing to construction.
- As things progress, Woulfe should make sure local Koreans understand the process and the obvious visible clues should not be neglected, like clearing up land as soon as possible as 5ilver suggests. The real deal is financing, but perceptions are very important.
Board of Directors
Working with CEO to secure project financing is what the new board of directors should be focusing on 100% immediately.
- All Woulfe's present board directors are financial types connected to or actually working for the major shareholder Dundee (Dundee has 16% of outstanding shares, over 30% on a fully diluted basis) and assorted Canadian financial houses.
- The presence of the Goodman & Howlett pair on the board (former Chairman and CEO of Cogitore Resources) may mean something, although I am not sure Cogitore was a success story: this Dundee company was recently wound down by fire-selling its exploration assets.
- For sure the board has access to Canadian sources to finance the project, and may of course be tempted to tilt the scale in favor of the lender if it happens to be Dundee (Goodman).
Financing
As long as NPV is publicly set at 160M, the discount base is a low 5% (from final feasibility) and as long as IMC keeps its rights to acquire 25% of Sangdong for 35M, the financers (even if they control the board) cannot deviate too much from these conditions and valuations.
- Project financing through Dundee or Dundee team may not be bad for the common shareholders, but only as long as no "special rights" are granted to preferred shares.
- Preferred shares have seniority over common shares and pay an interest, but in exchange for these privileges, they usually provide no dividends and have no voting rights.
- Preferred shares are typically issued to to finance high risk projects. Last year Dundee tried to have preferred shares with special rights issued to them over private placement - but failed.
- In case they try again with special rights, opposition from the other shareholders will be even stronger, as the Sangdong mine is now de-risked and that much closer to construction.
- BTW, Almonty received company and project financing through a Canadian consortium with Dundee participation about 4 years ago and survived, so it can be done.
Executive team
In the case of Woulfe there is not much of an executive team in Canada. CEO Gaucher even contracts company financials to a Vancouver firm (both CFO and corporate secretary work as contractors). The real executive team is in Korea, and is known as the Sangdong Mining Corporation. SMC is headed by Project Leader Sang Chul Son. who replaced Sang Bum Lee, now head of operations at Boleo mine (a Korean/Canadian copper mine in Mexico).
- My speculation is that Gaucher will soon be replaced. He has carried the company through detailed resource assessment and final feasibility, produced a tactically important merger offer and should still be useful through the financing phase. But If Dundee wants to keep control of the company, they cannot do it from a mailbox in Vancouver for much longer. And there is no "let it sit there until prices go up" option for the mine either, judging from the Korean reactions.
- Korea is a first world country with culture much older and more complex than ours, including business. Not being in country and not keeping one's word is not a good way to start a business there for a foreign company. If Dundee wants to take Sangdong through construction and production they need to have a Woulfe CEO and executive team in Korea. Otherwise they should get out of the way.
- Dundee has real mining expertise besides exploratory work (Dundee Precious Metals is a major-class miner). They would know how to start and run a profitable mine. So why are they not not going in that direction? Form all I have seen, they stopped investing in the mine half way through last year and in January they provided strong and unsolicited endorsement of a merger deal that would essentially take them out of the mine mamagement.
Failed merger
Almonty knows tungsten. They actually seem to enjoy mining tungsten and clearly make good money doing it. They did not mind setting up shop in Korea. Dundee seemed happy with 15% of the merged company and a privileged position as financial insiders to future Almonty needs. So why did the merger collapse?
- I don't think Almonty called it off (the CEO really wanted to have this mine he calls "the great lady of the east" I believe he said on cc last month).
- I do not think it was Dundee, who had clearly stated its support in the merger letter.
- I am sure it was not the long-term fund holders, they would have much welcomed the move to a profitable company to stabilize their investment.
- Several of the shareholders on this board were upset at the low cash value of the offer, but in the end most would have accepted the deal on the basis of future appreciation potential of the merged company. Answering Kilgor: there would have been a clear investible action plan.
- Korea Zinc is a shareholder at 10% but really has no business interest in the mine's ownership. and no longer has a seat at the Woulfe board. not enough to cause termination of the merger letter before due diligence.
- I think the objection or credible counter offer came from off-taker TaeguTec (IMC).
Could be IMC did not like that Sangdong would end up in the hands of an independent tungsten producer already selling to a competitor? Could be IMC finally saw the opportunity to fully control its tungsten supply? The appeal of controlling a reliable "forever low-cost" source next door has to be strong. Are they now giving Woulfe a better option?
Comment by
kilgor on Mar 01, 2015 5:28pm
I agree GaiusGermanicus that share buybacks programs can be good for investment value, but not in the manner that Almonty is using it.
Comment by
chizzles on Mar 01, 2015 8:07pm
I just want to thank Volfram for taking the time to write this all out. Like always, very informative and you cover all of the important facts. Always feel good about my investment after you make it clear for me. Thank you Chillzes