The DOCA will be approved as a matter of procedure, that from KPMG being the only documentation submitted. The judge would not consider circumstances leading to the DOCA or that there could be alternatives because KPMG because never entertained any. The precedent has been set by Korda Mentha with MBN. MBN has so far survived, but will remain under C and M unless the nickel price increases and will remain unlisted, possibly becoming insolvent when the money runs out. The judge will not be concerned with the outcome of the DOCA for PDN or the current state of MBN.
Just for the record, the following are some points related to the DOCA:
KPMG's report is not accurate in that it has omitted the fact that the $90M loan from CNNC to PDN would be more than offset by CNNC's failure to pay its 25% share of all in cash costs of running Langer Heinrich Mine (LHM) since purchase of that proportion of the mine in 2014 (in excess of $100M).
With that $90M part of the debt to creditors nullified, a fair and genuine takeover offer could have been made to shareholders, of 4.7c per share, or market cap of $80.5M ( the share price upon administration) rather than taking of 98% of the shares for nothing.
The independent expert's report claims that the share have no value in light of the financial case presented by KPMG, however that is pertinent only to the unauthenticated claim that there were no other options for restructuring PDN. For example, the first restructure being reapplied.
The first restructure proposed by Korda Mentha (KM) which had been agreed to by 2017 and 2020 bondholders, and in which PDN was protected until the end of September, 2017 by a standstill agreement, was only thwarted by the late claim by EDF for $277M. The latter move forced PDN into administration which itself could have served to protect PDN while negotiations were made with EDF. It is clear that in KPMG's reports that there was no communication with EDF for any solution by the fact that EDF expressed opposition to the DOCA only when it was announced.
The fact that EDF's demands could be negotiated and settled by an undisclosed deal with Deutsche Bank in order to ensure the DOCA is successful, proves the original lack of effort by KPMG in negotiating a similar deal which would have allowed the first restructure to then succeed.
KPMG have released no details of the EDF/DB arrangement, even giving the impression of having little knowledge of it. This would seem incredible since DB loaned the administrators $60M to pay their fees and maintain the running of LHM; also that the success of the DOCA depended on removal of EDF's demands and their objection to the DOCA.
KPMG have obtained permission from the ASX to not reveal the last two quarterly financial reports of PDN, in particular the profit/loss information from LHM, until after the DOCA judgement. This information should have been included in both KPMG's and the independent expert's reports, otherwise they cannot be regarded as current.
The latest CEO of DB was formerly CEO of UBS when it was a substantial share holder in PDN. UBS acted like a hedge fund during the decline in share price of PDN. Thus there has previously been a connection established between this CEO and PDN.
From the time scale involved and the detail of Matthew Woods' reports, it appears he was working on the DOCA from the outset. No reason is given earlier, and even now that EDF has been accommodated, as to why the first restructure devised by KM could not be reapplied.
KM were first commissioned by PDN to devise restructure but when PDN was forced into administration by the demands of EDF, KM became representatives for the creditors (bond holders). They had the advantage of intimate knowledge of PDN's finances. It is no coincidence that KM had devised a similar DOCA for Mirabela Nickel (MBN), even to the point of the $115M raise to keep that mine running until the price of nickel improved sufficient to sustain MBN. It would appear that KM and KPMG may have consorted to apply the same plan to PDN with the precedent set by court approval of the DOCA for MBN. However the result of that DOCA has been that the MBN mine has been under care and maintenance and shares unlisted, through failure to pay ASX fees, for two years.
If the court approves the DOCA for PDN either of two outcomes are likely:
- LHM will go into C&M because there will be insufficient funds left over from the $115M note raise after a $60M loan is repaid to DB and the fees of administrators, consultants, experts etc. are paid. No details of the commitment by DB to resolve EDF's claim and resultant financial implications for PDN have been revealed. Future exchanges indicate no adequate increase in spot price of uranium is forthcoming that will make LHM profitable.
- With possession of 98% of PDN shares the “ad hoc committee“ (ahc) may act like a hedge fund and artificially control the price of PDN shares. The market cap could easily be increased from the current $80.5M to well over $1B by trading within the group. Selling of such inflated shares to the public could fund the running of LHM but also make huge capital gains for the ahc.
KM were paid approximately $2M for their earlier role in restructure of PDN. What commission they will obtain for their role in setting up the DOCA on behalf of the creditors is unknown. From an ethical point of view one would have expected that KM would have been satisfied to see their first restructure plan succeed. However it is clear that there will be greater financial reward forthcoming from their role in additionally representing creditors through the DOCA.
There has been no mention of any communication with the Namibian Government concerning the DOCA and its possible ramifications for royalty returns, local employment and environmental responsibilities should the the LHM go into care and maintenance. It would be presumed that the Namibian Government should be kept up to date on the state of affairs of PDN and their approval sought in advance of the DOCA being placed before the court
The Namibian Government has a policy of acquiring a substantial percentage of assets developed by foreigners. Has PDN or KPMG made any approach regarding possible sale of part or all of LHM and if not, why not?
-------------------------
In summary, there has been a seemingly farcical and extended chain of events leading to the current DOCA. PDN, if managed competently and through adequate negotiation could have been restructured one year ago. This failure in restructure could be accounted for either by sheer incompetence or by deliberate external or conjoined strategies to obtain control of the company. Some have referred to CNNC and EDF as a “tag team “ in their alternate thwarting of attempts at restructure. CNNC and EDF have strong business connections and one of the major bond holders, CIC, like CNNC,is also a Chinese Government agency. Even the CEO appointed to oversee restructure of PDN has close former connections with Chinese parties involved in financing PDN. During late 2016 and wasting a crucial period of months, the CEO's failure to communicate and negotiate with CNNC on sale of a further 24% of PDN, the purpose of which was to repay the March 2017 bondholders, crashed the share price from around 25c down to around 15c, leaving little room for a capital raise to fund the bond repayment. KM was then hired to devise a restructure, a first and a second version of which were blocked by CNNC and EDF. This ultimately has led to the DOCA in which both KPMG and KM have played a role. KM will have profited from representing both sides. Rather than raising an extra $80.5M and ethically taking over shares, KPMG have accounted them as valueless and will confiscate 98% of holders shares.
(20min delay)
