WAF valuation, page-63

CMM just raised A$107 million in debt funding for Bibra through Macquarie and the management were never shy about telegraphing to the market that the money for the mine would be a combination of debt and equity. Judging by the size of the debt component relative to the total funding required as set out in the CMM's updated feasibility, the actual final debt to equity ratio is more weighted towards debt which will protect shareholder's long term profits (EPSs) in the future should the mine be built and successfully commissioned within budget.

The equity component of the Bibra funding has yet to be announced and the share price of CMM shares has been able to get some benefit from the rising gold price tailwinds. I'm not sure of the reason for the delay in raising the risdual equity in this company's case, ie whether they were hoping for the share price to get some traction before the raising or some other more pedestrian reason, but the net result of waiting is that the share price has risen and any raising will likely be at a higher price than just a few short weeks ago.

I've made the point before that given WAF were not building the mine using a turn-key contract model it should have given them (together with their pre-existing and sizable cash treasury) more flexibility in terms of when they decided to raise the equity component. WAF shareholders were informed post-raising that the equity raising was just the "reality" but we don't know if it represented a non-disclosed part of the funding agreement or a prerequisite condition of the debt funding. Shareholders should have a right to know if the equity raising and also the timing of the equity raising was forced on the company or not because if it was this represents an undisclosed and added cost of obtaining the debt which has clearly cost existing shareholders through the lost value of future earnings per share via the dilution. The price of the raising was also quite discounted considering the supposed quality of the project and there are accelerated rights issues that can be instigated which can be done almost as quickly as capital raisings to institutional investors but with the benefit of not diluting existing shareholders.

Now I understand your argument with respect to higher risks in BF so therefore a bigger squeeze on existing shareholders come the time for funding but part of the compensation for the funders is the general higher grade and better metrics of the projects that pass the sniff test in Africa. The bar is higher and that's also how risk gets mitigated. Take for example Sanbrado vs Bibra. Sanbrado is forecasting debt pay-back in less than 2 years, whereas Bibra are working on more than 5 years. The intitail grades at Sanbrado are more than 4 times higher than Bibra. That is also how the risk/reward and risk mitigation works for the funders between Africa and Australia. In the case of Sanbrado their money is paid back faster at presumably a higher (disclosed) cost. The funders are willing to take the risk on lower grade (more marginal) projects in Australia with slower pay-back times. This represents the natural risk arbitrage for the funders when deciding to fund projects in locations with vastly differing sovereign risk profiles. Considering we were told we were the batchelor giving out the roses to 14 short listed funders why did we get such a disappointing and opaque outcome?

I think I've got the right to use the term "sold down the river" because from where I sit the current pushing this canoe the wrong way still seems pretty strong. Esh