Ivanhoe Mines Ltd T.IVN

Time to force conversion of the convertible debenture

[ororosso]

The convertible debentures convert at a rate of 134.5682 shares per US$1,000.  There are $575 million shares outstanding.  The total number of shares that need to be issued to convert the debentures are $575 M/1000 * 134.5682 = 77,376,715 shares.  Forcing converstion will likely result in a cash penalty but it would rid the company of the debenutres and force the shorts to cover.  Wouldn't that be nice.  The only way the debentures don't convert is if the share price drops below Cad$9.31.  Unlikely.

Time to get rid of the convert.  BTW this was very expensive financing.  Effectively we will have issued shares work $931.4 million (77.376M *16.25 closing price divided by 1.35US conversion rate) to settle a liability of $575 M.  The annual effective cost of the financing if we converted the shares today without factoring in the coupon of 2.5% is about 17% based on the debenutres being outstanding for three years.  Great deal for convertible debenture holders.

[cashtango00]

Ororosso, You make an interesting point.  The rate on the debenture is very low which was the pitching point at the time. I guess what enticed the buyers was the fact there was essentially a call option on the stock.  I don't remember, but i swear that RF said at the time, the conversion was at the descretion of the company and they didn't have to convert.  I will have to

[cashtango00]

After looking, yes it is at the option of the holder, so they will convert.  I guess the stock was trading at 6.77 at the time and with a conversion at 9.31, there was a 37% premium.  That's expensive, but they needed the funds at the time and the rate was low.  I do remember on some of the financials in the last few years, IVN taking non cash write downs to compensate for the

[Potadvisor1]

Actually, it is IVN who will determine HOW they are to be converted AFTER April 22nd 2024, or next month. There are a few more cviets but all in all, we as in IVN decide what to give them and I would guess it will probably be CASH.  Upon conversion, the Notes may be settled, at the company’s election, in cash, Class A common shares (“Common Shares”) of the company or a combination thereof

[ororosso]

I think you are missing the point.  Of course it is IVN 's option to force the conversion as you have noted above.  They can pay cash but the cash payment is equal to the US$ value of 134.5682 shares, not $575 million in cash.  There is no way IVN has that much cash to convert with cash.  They will have to use shares to convert.  The number of shares will always be

[DoubleDoubleUp]

Can you please elaborate what this - convert and issue shares - has anything to do with the he shorts? "So the question is do they convert the bonds now and issue the predetermined number of shares and see what happens with the shorts or do they do nothing and wait. "

[ororosso]

Convert investors often short the underlying stock as they have an embedded option to buy the stock.  Often they will lock in a short position against the long option they have to ensure a certain return.  They can trade around the option by shorting it, unwinding the short and shorting again.   That is why these convertible debentures are in demand.  The interest rate is

[DoubleDoubleUp]

Thanks for the explanation. It is not easy for where our price is and IVN has achieved today.