If AZX had only $3.7m at end June a the burn rate with 3 rigs on...

If AZX had only $3.7m at end June a the burn rate with 3 rigs on the go is ~$1m/month, then the coffers are no doubt getting quite empty by now, and AZX need to rasie cash. If they can't fund their agreed obligations, then the penalty clauses in the JV agreement are quite brutal:

"Upon exercise of the option, the development of Bullabulling will be governed by a Joint Venture Agreement between the Company and Auzex. It is envisaged that feasibility and development expenditure for Bullabulling, will be jointly funded on presentation of a budget. If either party should elect not to contribute, then they will be diluted on a straight line basis, using an initial valuation of A$5 million.

? The majority owner of Bullabulling will manage the joint venture. In the event of 50:50 ownership and no clear majority, a management committee will be set up to represent the interests of both parties."

Because the only way AZX can retain the asset (or a decent share of it) is to either come to the market for funds, or for GGG to offer some sort of finance.

So, Case 1 is a Rights Issue or Placing.

AZX have ~95m shares in issue, trading at about 45c. Be generous and say they could raise funds at say 40c (more likely 35c or below in this market). I would suggest they need another $10m at least to go for another year which would mean issuing 25m shares. That is ~26% dilution of existing shareholders if a placing or shareholders need to put their hands in their pockets to the tune of ~$2,600 for every $10,000 of stock they already own to simply retain the current %-age of BB. Maybe they could split it into 2 tranches an do $5m now, and $5m in the New Year in the hope that the sp is higher by then, but it will still be overall significant dilution or cash required.

Case 2 might be some sort of funding from GGG

Maybe GGG could offer a Convertible Bond for say $5-10m, exercisable at say 50c/share, which would reduce the effective holding of existing shareholders in AZX by a smaller amount than Case 1. But if they were to give up such a portion of their cash, then in my view they need to drive a very hard bargain indeed to ensure they get an acceptable outcome on the management and structure issues. In particular, JL should be offered some sort of face-saver by floating off the non-core AZX assets and he can go and run those after taking the BB asset to its current state.

Case 3 would be for AZX shareholders to accept the 7 for 5 bid, and retain their share of ~50% of the asset their current shareholding corresponds to without putting their hands in their pocket at all, and if they float off the non-core assets, they can keep their share of those too.


On that analysis, the rational thing to do is accept the offer. But in this sort of situation, the rational thing is often not the thing that is done. But JL certainly ought to be squirming right now.