Hi. Just got this through from a contact. Just passing on in case of interest. Think it makes some good sense.
Agree that its definitely an exciting year ahead.
B
-------------------------------------------------------------
Hello,
Yesterday Marimaca announced a new equity financing of C$30.9m.
Clink here for the full new release.
As I helped with this transaction, I'm happy to try and provide some additional context and thoughts. Just a note on pricing - when the price of C$3.30 was agreed for this placing it actually represented a premium to the prevailing market price at the time. As at yesterday's announcement, the trailing 5 day VWAP was C$3.57 per share ... therefore the placing represents a 7.4% discount.
Any equity financing in a junior company will always be seen from multiple, but very valid, angles. It's always going to be a question of negative dilution against positive funding ability and certainty. In this case, although Marimaca had successfully raised equity finance last December and was funded to progress into 2021, additional financing was always going to be required at some point. One of the main reasons for this was the outstanding land payments agreed upon when consolidating 100% of the land package. Over the next 12 months the company has a total of US$18.5m / C$23.3m of payments to make (this is the bulk of all remaining land payments, and completes the consolidation of the Marimaca deposit).
The obvious question then becomes when should the company raise money? Understandably shareholders dislike dilution, and therefore will also want additional capital to be raised at as high a price as possible. In this case the temptation would be to do a first round of exploration drilling, hope for good results, then go to market. The dangers in this approach are several - what if the first round of drilling does not provide the knockout results you hope for? (which is often the case), what if the copper market weakens?, what if investors are then not interested? In my view you can quickly go from a strong position to a very weak one. Just for the sake of comparison, say that the Company held off, waited for drilling results, and raised money at C$4.30 rather than C$3.30 ... if you do the maths the additional dilution saved is just over 2%. I strongly believe this level of dilution is acceptable against the funding certainty the raising provides.
In this situation a large "strategic and long term investor" showed interest to become an additional cornerstone shareholder. I feel Marimaca has always been too working capital light, and as such is a price taker from the market. The Company is now in a position of balance sheet strength, and the market now understands that the Company is not com issue for the foreseeable future. Buying interest now has to go directly into the secondary market ... which may partly explain yesterday's volume.
It is also worth commenting on the spot copper market. It is rising quicker than I expected ... even though I do believe we are at the beginning of a cyclical bull market for the metal. If the spot price continues its rise it's worth keeping a thought on how this affects the initial Marimaca Oxide Deposit (MOD). With this funding the Company now plans to have a Bankable Feasibility Study completed on the MOD, with full permitting, by the middle of next year. This spot market is moving strongly, and the closer we get to production the more the forward curve becomes our friend. For example if people start to use US$4 per lb to value near-term development assets, the effect on the MOD is dramatic. At US$4 per lb the MOD kicks off an NPV8 of US$1bn / C$1.26bn, 48% IRR pre tax ... and US$700m / C$885m, 40% IRR post tax. I still don't know of a better asset. Both from a payback metric, and jurisdiction and location points of view.
Summary - I believe the investment proposition is not only fully intact, but getting stronger. Especially with the recent Cindy and Mercedes announcements. The MOD continues to strongly underwrite significant value, and the exploration is looking very exciting. The Company obviously has a lot of work to do, but the drill rigs are turning and the copper price feels like it will continue to act as a strong tail wind. An exciting year ahead.