Not surprising. When Denis kept referencing the "management restructure" that suggested that all of the "bad" was swept away, it left you wondering why the executive deputy Chairman and de-facto MD who appointed the previous "bad" people was still running the place.
The bottom line with all of this is that the lenders are calling the shots. If Denis stayed, then TAM were not going to be able to draw upon the debt facility. The major positive is that this kills off the need for a Capital Raising prior to BFS. Allied have played this one expertly. By pushing the share price down through the floor by bot trading, the low share price ruled out a CR which then meant that debt was the only way forward which made TAM beholden to its banker. Since Allied controlled that, they were able to tell Denis that he had to go as a condition of the company getting more debt.
Allied as a shareholder and lender are the major ongoing risk for TAM. With 20% of the company they are in effective control because of their control of the debt facility. The whole current board is now in their pocket. Chinese companies struggle with the concept of "acting in the interest of all shareholders" so the company's integrity is now dependent upon the independence of Arthur Dew (who is an alternate chairman to the chinese chairman from Allied).
The management team - Andy, Tony and Peter - are the only guys you can trust now. They are hard working, honest operators who will do their very best for shareholders and staff. The board and Mr Dew should be on notice that shareholders will be watching them carefully and that they need to overtly act in the spirit of fairness to all shareholders.
On the very positive side, this removes all of the brakes on the share price. The capital raising is dead and the company is now free to aggressively pursue its growth plans unencumbered by the perception of past management.
Allied are at the very least aggressive and growth driven and that should drag the shareholders along for a ride. Key risks for the future are the repayment of the debt and the terms for which that may be converted. I would expect that shareholders may be asked to agree to a resolution that converts the debt to equity in the near future based on the recent low share price. Having said that, there is never a bad time to raise equity - especially in this market and 50 cents is an absolute floor for converting the debt to equity being that it would value the company at less than $50 per ounce in the ground. If Allied are going to convert, it would be very cheeky to try and do it with a resource upgrade pending so they need to wait and that means that they would have to convert at something way way north of 60 cents. They would struggle to make that look fair otherwise so I expect that they will seek to convert the debt to equity in January 2013 once the Ground Rush resource is announced.
It's best that Allied come clean with any resolution for conversion ASAP so that this is clear for the market and it can be dealt with. Unfortunately, until they do advise their intentions, the market and brokers will be telling shareholders that there is an overhang in the market which may hold things back a little and it is in Allied interests to put the brakes on the share price if they are going to get maximum conversion.
Regardless, 54 cents is very cheap for TAM. Anyone buying in at that price can be confident that there is a 50 cent floor under them and that they are getting extremely good value. With the prospect of virtually unlimited debt available to it, I would not be surprised if Allied are considering using TAM to acquire other projects. In particular, ABU are cheap at present. With Allied's cash, TAM could easily absorb ABU in a cash only deal. This would solve many operational problems and allow for substantial capacity upgrades for central tanami and coyote.
The management of the ABU relationship was a major stuff up by Denis and the old management. They let ABU get away from them when they had so much leverage.
TAM Price at posting:
53.5¢ Sentiment: Buy Disclosure: Held
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