RE: RE: Financial post-Retiree
Retiree- So Scotia, BMO, Clarus, Canacord and Cantor Fitzgerald all have buy ratings on Krn, and your concerned because one of the analysts lowers his target price by $1.75 to $10.25 because of the dilution that will come?
The mine construction period for Krn is less than 2 years.
Krn has under 28 million shares outstanding and could potentially double their share float with incrimental equity raises over the next 2 years as they build the mine.
Robin Phiney the CEO owns 15% of the company, and he has been exceptionally careful with dilution, that's why their is only 28 million shares outstanding, and that's why he speaks about not giving shares away too cheaply.
So what, Krn ends up with 60 million shares outstanding and a fully financed mine.
Wow, I will take that any day of the week. They double the share count and we are in production. Yippee!
EPO on the other hand has 300 MILLION shares outstanding and will require substantially more dilution just to complete their feasabillity study and environmental approval.
So lets say they need to raise another $20m in the next year, well that's another 80 MILLION shares.
Then Epo needs to finance the project $4.1 BILLION at 50/50 debt to equity.
Are the going to issue 8 BILLION SHARES ? To raise $2 Billion?
When has a junior exploration company been able to sell $300 million in shares, let alone $2 Billion?
Lets say, magically, that EPO could raise $300 m at .25 cents a share. That's 1.2 BILLION SHARES and you still only have 8% of the capex(modelling $4.1B like K&S)
Do you really think that shareholder value will be retained in any shape or form if they raised $300m?
The float would be 1.5 BILLION SHARES on just $300m.
Look up YRCW and see how many Billions of shares they have issued and how many reverse splits the stock has done. Shareholders have been diluted out of it, not just once, but several times.
But you will say, EPO is different to Wpx and Krn. They will figure a "special" way to avoid dilution that nobody else has ever figured out.
You will also no doubt say that the SP will be much higher after they have the feasabillity study is complete and they have environmental approval.
Well, is that what has happened with Aaa, Wpx or Krn?
No it isn't.
The share price of all 3 is lower now than it was a year or 2 ago before they had the BFS or environmental.
But it will be different with EPO right?
There is no way imho that any shareholders of EPO can not be diluted right out of the picture.
Dilution is the killer of shareholders. Each share raise lowers your stake.
The main reason I am in Krn is because of the lack of future dilution.
The capex is $600m , they get $300 m in debt and they already have $62m, so that leaves $240m to be raised in increments. Not exactly a killer dilution.
When they build the 1st phase they will be able to build the second out of the revenue and additional debt.
I understand where Clarus, Frazier Mac and Cantor Fitzgerald up get their $100 price target for Krn at full production.
It's has to do with the lack of dilution needed.
They can see how it can be built out using revenue from the first phases and debt.
Once a company is in production and earning money, the debt becomes easier to get.
Krn builds the first phase for $600m, and their mine plan and deposit allows for an additional capacity of 750 thousand tons to be added on every 2 years at a cost of approx $650m. All the time money is still pouring in from the previous phases production.
It's a brilliant plan.
Rather than go out to the market for the likely $4.1 Billion like Epo or Wpx has to do, both Aaa and Krn can start small and use their income to increase production.
EPO has to raise all their money before they can get one ton out of the ground. Their mine plan and deposit don't allow for a staged approach to the build.