RE:Wow! Rob Chang really hates the NexGen Financing...Good to hear that Chang doesn't like the financing. Him and Cantor aren't benefiting so one can easily read between the lines.
He's usually wrong anyways so I see this as a positive. Thanks Quacks.
quakes99 wrote: He even cut his Target Price by 7% from $5.20 down to $4.85. I think that's the 1st time ANY analyst has cut their target on NexGen.
He goes on at length about all the reasons why, but he echoes the concerns raised by myself and others, such as:
Why now, before the PEA?
Why at the same terms as last year with no premium for project advancement?
Why take on such huge debt while facing a high risk U market?
Here's the post from Stockmaster, but you really need to download the full report to see his full evaluation and reasoning.
stockmaster989 wrote: According to Cantor Fitzgerald:
https://www.cantorcanada.com/pdfFiles/20170704NXE.pdf
NEXGEN ENERGY LTD.
Recommendation: BUY
One-year target: $4.85↓ from $5.20
Return Target: 69%
2nd Financing Package Adds Even More Debt
EVENT
NexGen Energy has announced that it has entered into a binding term sheet with CEF Holdings Ltd. (“CEF”) for a second financing package totaling US$110M.
BOTTOM LINE
Negative – While NXE will have an excellent cash position of about $200M after this transaction along with an exceptionally strong voting alignment agreement with CEF, we are not enamored with the strapping on of additional debt for an exploration company that does not generate revenue. The timing and terms of the deal perplexes us since the PEA is expected in the near term and if positive, could provide a basis for improved terms or alternative financing for development. Moreover, the project has advanced since the first deal with CEF was struck a year ago that would justify improved terms for this round.
FOCUS POINTS
Financing package details – The total financing package involves US$50M in common shares of NexGen along with a US$60M aggregate principal amount of unsecured convertible debentures, the terms being the same as the initial CEF debenture announced in June 2016.
Borrow cash now, give some back later – In total, NXE has borrowed US$120M from CEF and will pay US$33M back in interest payments at a 5% interest rate over the total lives of both tranches. This translates into 28% of the amount borrowed that will be returned.
Advancements not recognized – Since the first deal with CEF, NXE has increased the resource estimate to 301M lbs U3O8, listed on the NYSEMKT and a PEA is due shortly. However, the second deal is similar to the first.
INCREASING DEBT FOR AN EXPLORATION COMPANY IS RISKY
The US$60M portion of the announced financing package brings the total debt load for NXE to US$120M for a term of five years at an aggregate interest rate of 7.5% comprised of 5% in cash payments and 2.5% in equity issuances.
Since NXE is not expected to generate cash flow any time soon (we estimate first production by 2026), it will likely need to set aside some of the cash it borrowed to service the interest payments. We calculate that the total cash payments for the combined two debenture packages to be US$33M or 28% of the amount received – leaving US$87M to be used. In addition, equity issuances equating to 2.5% interest are also payable. At the current share price, the total dilution on a go forward basis is approximately 5M shares, or about 1.5% of the post financing share count.
While we believe the uranium market will be in significantly better shape in five years, NXE places itself in a situation where it needs to deal with repaying or refinancing US$120M in five years time when it is unlikely to be generating cash flow from any of its current assets. If the uranium market continues to be weak at that time, the debt could place NXE in a very tough situation. The same argument could have been made last year when the initial US$60M deal was struck. However we note that last year’s transaction brought on a strong investment group in to the fold that is backed by Li Ka Shing in a tough equity raising environment with no equity dilution. While the equity markets are not any better now, doubling the debt to US$120M has made the interest service requirements larger (US$33M from US$15M prior) and created a larger issue to deal with when it matures in five years (US$120 vs. US$60M).
quakes99 wrote: Wow! Today's announced major financing by NXE is hugely perplexing. NexGen is known for doing everything in an unconventional way, so perhaps this financing shouldn't come as a surprise. Even more of a surprise is that the share price rallied on the news, though it is now selling down again.
Why do a financing here at such a low share price, at the bottom of the current U price cycle?
Why announce it on a Friday before a long weekend heading into market holidays for the TSX on Monday, and US Markets on Tuesday? This is usually the day for releasing bad news that you don't want the market to notice.
Why carry out a financing before releasing what is being pumped as an earth-shattering NI 43-101 Preliminary Economic Assessment next month that, if true, would push the share price far higher and accommodate financing at a higher share price with much less dilution of existing shareholders?
Just doesn't make any sense. :-0
Working through the numbers...
Shares Issued... 312.7M
Options 33M
Financing #1 25.8M
Financing #2 22.3M
New issued 24.1M
New total for Shares Issed is 336.8M... so 7.7% dilution immediately.
Fully Diluted rises to 419.8M shares with total dilution of 33.6% to existing shareholders.
And the market thinks this is a good deal and rallies the share price?
When Dev and Ross negotiated the cash injection of $82M from CGN, CGN paid $0.85/share while the market share price was only $0.64. CGN paid a 33% premium, which significantly reduced dilution of existing shareholders. And NO DEBT!
Why did NexGen have to settle for financing at the market price with no premium, with an additional 7.5% interest rate on all that debt?
If the PEA is really going to be so fantastic... this makes no sense at all.
Clearly, NexGen is not expecting to be taken out by a major producer. A takeout offer would be diluted by 33% right off the top by all the options and debt conversion based on their method of financing.
Lots of head-scratching on this one.
Cheers!