Hi Guys,
Like others, I'm trying to understand this deal. Look forward to
@JID's analysis in the fullness of time! Enjoy your break, mate!
Our analysis should focus on the T3 deposit. As Cashmeoutside mentioned, it would have been great to totally buy the whole 30% stake owned by MTR, but unsurprisingly, MTR is not yet willing to part with the exploration plays. They would view these as far more prospective than the value which can currently be demonstrated from them, and so want to hold on to them, and prove up that value before selling. Fair enough, in their position, I would do the same.
With regard to T3, what have MTR been given? 17.2M shares or 7.2% of the company. This combined with their current holding in MOD (which they have paid for the same as the rest of us) takes their total holding to 12.5% after the transaction. So MTR have actually given up a 30% stake in T3 for a 7.2% stake in the company as a whole.
What has MTR gained as a result of the transaction? They have been given a free carry for their 12.5% stake in T3 for A$18.7M (40.6M options at $0.46) worth of capital raising which MOD will need to undertake in order to build a plant at T3. To be clear, MOD can raise $150M of capital by issuing equity and MTR can keep their 12.5% stake without being diluted like the rest of us.
What would the value of a 30% stake be after dilution if $150M of capital was raised at today's prices? Funnily enough it would be 12.5%. But remember that MTR already owned more than 5% of MOD prior to the transaction.
Of course there are complications.
1. Were MOD to raise capital today, it would certainly be at a discount to today's prices.
2. This deal has effectively given MTR an extra 7.2% ownership of 70% of the exploration properties.
Based on this analysis, I think the fairest way to characterise this transaction is MTR have swapped 21.2% of T3 (30+5.3x0.7)-12.5 for $18.7M in future cash they don't need to provide and an extra 7.2x0.7= 5% of the exploration upside.
Make your own mind up if that is fair. As a MOD shareholder, I'm not dissatisfied, but like I said up front. I'm looking forward to smarter people than me throwing in their ideas.
Cheers,
Tim.
