Adriatic taps the market, Arafura's debt firms, MAC does a deal

Blackrock is pushing for the Anglo-BHP deal to occur

May 27, 2024

The Pre-Start

  • Metals Acquisition Corp has struck a deal with Cobar neighbour, Polymetals where MAC will invest $5m into POL, both to treat zinc at Endeavour, POL provides MAC with excess water offtake (MAC, POL)

  • Arafura conditionally approved for US$300m of debt financing from Export Development Canada (ARU). Debt is conditional upon Arafura achieving the 80% binding offtake target and other “customary” items - we assume equity…

  • Adriatic Metals sold first concentrate from Vares and tapped the market for equity as Orion sold down (ADT) more details below

  • Winsome is in a trading halt pending the release of an updated Mineral Resource Estimate (WR1)

  • Centaurus hedging their nickel bet, commencing exploration drilling at their Boi-Novo copper/gold project in Brazil (CTM)

  • Southern Cross Gold intersect 473g/t gold at 0.3m true width, approximately 800m below surface (SXG)

SXG long section

High Grade It

  • BHP & Anglo are split over how much value destruction could come from South African government demands should the takeover proceed and major local assets be divested (AFR)

  • IGO’s Ivan Vella said Chinese investors have earned the right to have access to Labor’s $13.7 billion production tax credit scheme (AFR) We’re curious whether IGO’s JV with Tianqi has influenced Vella’s thinking here

  • One of Anglo’s biggest investors, Ninety One, welcomed the prospect of a deal but added the suitor needed to put more on the table (AFR)

  • BHP’s buyout battle may not be with the Anglo board, but it could ultimately be a rump of UK investors. Could this be BHP’s “Origin moment”? (The Australian)

  • Anglo was pressed by key shareholders including BlackRock to extend talks with BHP over its proposed £38.6bn mining merger (FT)

  • Tin remains the strongest year-to-date base metals performer despite copper’s run, exchange inventory has been rising too (Reuters)

  • Energy Minister Chris Bowen ramped up attacks on Dutton’s proposal for nuclear reactors to be plugged in on the site of coal plants, declaring Dutton doesn’t understand the communities’ attitudes (The Australian)

  • Newmont reopened Cerro Negro following a 6-week closure after there were 2 fatalities at the Argentinian site (Mining.com)

  • The aluminium market is caught in a clash between traders and banks, with more than $1 billion of metal changing hands. Commodities trader Trafigura is bearish, as stockpiles grow at ports (Bloomberg)

  • Hedge funds and other speculators boosted their net-long position in Comex gold instruments, the most bullish level in 4 years (Bloomberg)

  • UBS said nickel supply shock has peaked and won’t sustain price revival amid New Caledonia tensions (The West)

  • Saudi Arabia plans Aramco share sale as soon as June (Reuters)

Wheelin’ n Dealin’

  • Fitzroy Mining Operations, the Bowen Basin coal mining business owned by Hans Mende & Fritz Kundrun’s AMCI is rumoured to be looking at a debt deal to fund its Ironbark underground mine (AFR)

  • Dataroom speculated that several companies, including Stanmore, Whitehaven and Yancoal are hoping BHP fails in its quest for Anglo so that they can scoop up its coal assets (The Australian)

  • DiscovEx, which is backdoor-listing a Finland gold and copper explorer, Latitude 66, has reached 91% acceptances and firm bids to raise $4m.

Rattlin’ the Tin

  • Adriatic Metals is raising US$50m (~A$76 million) at A$4.40 per CDI and Orion is selling down ~A$35 million simultaneously via a block trade, retaining 4.9% shareholding (ADT, AFR) fully-funded, again!

  • True North Copper completed the institutional component of its raise ($16.6 million) with the retail component ($7.7 million) opening Friday (TNC)

Word on the Decline

  • Was there a fire that began in the gold room at Northern Star’s Jundee project on Friday afternoon?

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In the Weeds

  • Sam Altman has backed Oklo to meet the energy demands of AI data centres via nuclear energy (Bloomberg)

  • Despite value investing’s poor decade in the US, the dawn has emerged internationally and, theory and evidence would suggest, the sun will rise again (FT)

  • The world is changing, and the increasing demand for critical minerals and rare earths will define national security & green energy - an oped by resource minister Madeleine King 

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Devil’s in the Detail

The Joint Lead Managers on Adriatic’s capital raising are Macquarie Capital, Canaccord and Morgans.

We admittedly raised our eyebrows when we noticed Morgans initiate research on the company just six weeks ago, so of course we shouldn’t be surprised to see them on the ticket, should we?

A delicate way to describe equity raise risk in the Morgans initiation?

Canaccord’s Paul Howard has covered Adriatic for some time. But what about Macquarie? To the best of our knowledge, the research boffins at the silver doughnut are yet to cover Adriatic. But we noticed a clue that MacCap would make their way on the ticket in Adriatic’s public investor presentation two months ago.

As a former PowerPoint monkey, I will unfortunately recognise the colour palette circled until I die.

It’s right from a MacCap marketing deck, I am certain.

But heck, who really cares which bankers are involved… I really should have focussed this column on the peculiar happenings at Adriatic Metals, such as:

  • This is the 2nd capital raising from Adriatic since being ‘fully funded’

  • The CFO stood down ~3 weeks ago - incidentally, his replacement was an excellent drinking buddy in London. But the MMs know key personnel churn during ramp-up raises questions for us

  • Orion has sold down to 4.9% and only promised not to sell more for 90 days after the placement completes

  • Warren Gilman’s QRC converted its debt into shares in early March, before the end of the four-year term was up (30 Nov ‘24). Granted, if you peel into the fine print of Adriatic’s Annual Report, you’ll see the tweak to the senior debt terms with Orion required QRC’s debt to convert to equity by 31 July.

    So technically, Gilman still converted the debt to shares ~5 months before he was required to. Why are we making a fuss about this? Well Gilman himself said on our very podcast:

Nine times out of 10 I'll hold the converts to full maturity and beyond… Why? Because it's such a wonderful structure you have total optionality on the upside of the equity that you're investing in but you're still receiving this coupon so if I were to exercise my right to convert prior to the maturity of the debenture I'd be losing out on getting that coupon…

I should emphasise that our structure allows us to convert at any time and convert as much or as little so if I have a $20 million convertible I can convert $1 million of it and sell those shares into the market if I want and keep the other 19… So if the stock goes crazy for what I think is going to be a brief period of time I do have the flexibility in the structure to realise on that.

I tend not to do that though because, you know, I'm a partner with the company. I'm their partner for at least five years, maybe more. And I don't want to kill any rally in the stock so I've never done that but I just wanted viewers to to know that we do have the ability to do that if the opportunity arose and we thought it was the right thing for our shareholders.

Warren Gilman of Queens Road Capital on Money of Mine 6 September 2023

And despite all of this, Adriatic’s share price has continued to soar. We wonder if it’s a case of the “stock going crazy” as Gilman would say, or if the market is fairly ignoring any short-term hiccups given the big picture here. The grade of this project is insane after all.

Whichever the case, raising equity here actually makes sense - as disappointing as it might be for some shareholders. We think that both QRC and Orion are revealing their view that valuation is lofty right now. Boosting the balance sheet now is a lot friendlier to shareholders than it could be if required in 6 months time when the first DSCR testing would occur.

Catch up on our latest episode

🔗 The Red Flags of Financing in Gold Miners (Sean Russo)

Disclaimer

All information in this newsletter is for education and entertainment purposes only and is of general nature only. The hosts of Money of Mine are not financial professionals. Money of Mine are not aware of your personal financial circumstances. Before making any investment decision, you should consult a licensed financial, legal or tax professional, along with considering any relevant Product Disclosure Statement. Money of Mine does not operate under an Australian financial services licence and relies on the exemption available under the Corporations Act 2001 (Cth) in respect of any information or advice given. Money of Mine strives to ensure the accuracy and currency of the information contained in this newsletter but we do not make any representation or warranty that it is accurate, reliable or up to date. Any views expressed by the hosts of Money of Mine are their opinion only and may contain forward looking statements that may not eventuate. Money of Mine will not accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of information in this newsletter.

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