GGPChat

Wowzers: Could Shaun have landed this Eagle any better....?

A fine article on the immense leverage and power in the hands of a junior with the ROFR:

https://www.mondaq.com/canada/mining/22 ... ight-hands

Essential Reading:

" When it became clear that Barrick would be entering into an agreement to purchase Xstrata's 70% interest, New Gold commenced discussions with Barrick for the sale of its 30%. Barrick was ultimately interested in acquiring 100% ownership of the project, but believed that it would have significant leverage over New Gold once it completed its acquisition of the 70%. In particular, as controlling stakeholder, Barrick would be able to sequence El Morro behind its other Chilean projects, thereby delaying production and placing pressure on New Gold to exit the project at a low price. "

Barrick offered to purchase the 30% interest for $135 million. This offer, which New Gold characterized as "low ball," was well below the interest's indicative value of roughly $198 million, based on the sale of Xstrata's 70% interest for $463 million. New Gold rejected this offer, and talks with Barrick broke off temporarily.

New Gold then began a formal value maximization process in November 2009 through which it actively marketed not only its own 30% interest, but also the possible sale of either: 1) a 100% interest in the El Morro project through the exercise of its ROFR over Xstrata's 70% and the tender of its 30% stake or 2) a 70% interest of the El Morro project through the exercise of its ROFR.

Goldcorp initially wished to acquire 100% of the El Morro project by first purchasing New Gold's 30% interest (including the ROFR over Xstrata's 70%), then exercising the ROFR to acquire the remaining 70% at the fixed price of $463 million. However, it soon realized that such a transaction was precluded by the fact that Xstrata held a reciprocal ROFR over New Gold's 30%. As such, any effort to purchase New Gold's 30% would give Xstrata (and in turn, Barrick) the opportunity to swoop in and consolidate 100% ownership of the asset.

Recognizing that the 30% interest would have to remain with New Gold, at least for the time being, Goldcorp and New Gold focused their attention on structuring a transaction for the 70% interest with "sweeteners" to enhance the value of New Gold's interest, while committing to talk in good faith about a possible deal in respect of the 30% after the 70% transaction closed.

To this end, they worked out a proposed transaction whereby: 1) New Gold would exercise its ROFR and enter into an agreement with Xstrata for the purchase of the 70% interest; 2) New Gold would assign its agreement with Xstrata to a subsidiary created for the purpose of acquiring the 70% interest; 3) Goldcorp would lend the subsidiary the $463 million purchase price; 4) the subsidiary would close the transaction with Xstrata and 5) New Gold would thereafter transfer the subsidiary to Goldcorp.

As compensation for entering into the proposed transaction, Goldcorp offered to New Gold:

a cash payment of $50 million;
a firm commitment to commence commercial production by a certain date and a construction guarantee with monetary penalties in the event of default or delay; and
an amendment to the shareholders and funding agreements, relieving New Gold of its commitment to pay any funding expenses until the commencement of commercial production and reducing the interest rate payable on outstanding carried funding loans.


Prior to accepting Goldcorp's offer, and on the eve of the ROFR expiry, New Gold advised Barrick that it had a deal in the works involving an exercise of the ROFR. New Gold gave Barrick a final opportunity to submit an offer for the 30% interest. Understanding that it faced the prospect of losing the asset entirely, Barrick returned with an offer of $300 million (being over $100 million above the indicative value of $198 million derived from the $463 million price for Xstrata's 70% interest.) However, New Gold declined Barrick's offer, and exercised its ROFR the following day.


Barrick sued Xstrata, New Gold and Goldcorp for approximately $750,000,000 in damages, alleging a breach of contract (by Xstrata) and numerous torts (by all defendants). The crux of Barrick's complaint was that by agreeing to a pre-arranged onsale of the 70% interest, New Gold had effectively transferred the ROFR to Goldcorp, in breach of the transfer restrictions contained in the shareholders' agreement. Accordingly, argued Barrick, New Gold's ROFR exercise was invalid, and Xstrata was contractually obliged to close with Barrick.

Following a 35-day trial, the Hon. Justice Wilton-Siegel J. of the OSCJ dismissed all of Barrick's claims. In particular, His Honour held that New Gold's exercise of its ROFR after having pre-arranged an immediate onsale to Goldcorp was proper and valid


Takeaways From the Barrick Case

Perhaps the most obvious takeaway from the Barrick case is that ROFRs can be effectively leveraged by minority partners looking to maximize the value of their interest. Through ingenuity and creative lawyering, New Gold was able to leverage a non-transferable interest with no inherent monetary value into, alternatively, 1) an offer of $50 million dollars and a significantly improved position in the El Morro project that included a construction guarantee subject to significant payments for delay and decreased financial commitments pending construction and 2) an offer to purchase its 30% interest for $300 million (being 222% of the value that Barrick originally offered for that interest).


A ROFR may provide a senior mining company with an effective means of ultimately consolidating its position, if that is its goal. However, a senior who foresees an eventual sale of its majority interest should consider how a ROFR may impede its ability to get top dollar for its interest. By way of illustration, Goldcorp was willing to pay in excess of $50 million more than Xstrata was able to command through its auction process. It may be that, in light of the Barrick decision, more companies will stay out of initial auction processes, preferring instead to take their chances at acquiring the interest through the non-exiting shareholder's ROFR after a strike price has been set.

A junior mining company may be eager to have their agreement contain a ROFR if they perceive that their senior partner will likely exit the project first. In such circumstances, a ROFR may afford them the opportunity to find themselves a partner more desirable than the proposed purchaser, as was the case for New Gold. However, as with senior companies, a ROFR is likely to depress the value of a junior's interest if it seeks to exit the project first. Indeed, the depressive effect may be significant where the senior is widely known to have the financial capability to exercise the ROFR, because potential purchasers may decide to save themselves the time and expense of engaging in a process to set a price if the ROFR is likely to be exercised in any event.

Finally, a prospective purchaser should consider how the existence of a ROFR might frustrate its intended transaction. Had Barrick given due regard to the potential of New Gold exercising the ROFR through a partnered onsale, it may have been inclined to take a different approach to its negotiations in respect of New Gold's 30% interest. In all likelihood, Barrick could have secured the 30% interest and neutralized the threat of the ROFR in October 2009, at a price well below the $300 million it ultimately (and unsuccessfully) offered in January 2010.

The ubiquity of ROFRs in the mining industry may give rise to the misconception that such provisions are mere boilerplate requiring little thought or attention. Companies that adopt such an attitude may miss out on leveraging opportunities, or find themselves watching a lucrative opportunity disappear with the unanticipated exercise of a ROFR. Given the complexity of the considerations at play when dealing with ROFRs and indeed with other seemingly innocuous contractual provisions, mining companies would be well advised to obtain legal advice both during the negotiation of agreements and when considering a value maximization process. After all, as the situations of New Gold and Barrick aptly demonstrate, creative and innovative legal thinking may well be the difference between negotiating yourself a windfall and watching your deal fall apart.

If I am reading this ALL correct this makes Telfer essentially TOTALLY worthless to anyone Except Greatland and Wyloo. Becuase the ROLR is over Havieron BUT not Telfer. That simple fact enables Greatland to legally leverage and separate them apart, by exercising the ROLR should any competing bid arrive... Absolutely amazing - that's unbelievable leverage !!! - No other bidder stands a chance. Newmont essentially cannot sell to anyone else w/o the consent of Greatland. And Newcrest the sneaky bastards only allowed it into the contract because they figured it could be used to beat down Greatland's strike price should they want to sell out. Becuase no other bidder for GGP's 30% stake would 'take on' Newcrest. They just never figured that Newmont would step in an buy them first...



Sandeep must be crying himself to sleep... No wonder he's just got into bed with Elliot.

Consequently, there will be No bids, IMO. Shaun Day is going to bag Telfer and walk away with 100% for a steal...
Becuase accepting any counter bid runs the risk of Newmont being lumped with Telfer ( as the Right is over Havieron alone).

Like i said it's genius...

That’s a really interesting article. Thank you for sharing it here.

As I pointed out recently it’s also possible that SD accepts the hard reality that the capital sums required here (including funding 100% of the project to completion) are out of reach for GGP, particularly if he wants to respect the promises he’s made to GGP’s existing shareholders. He could do a face-saving deal with Newmont, securing a premium (“eyewatering”..?) value for the 30% and the ROLR - perhaps by agreeing to tag-along if Newmont can find a buyer for the 100% + Telfer.

It is a very complex situation, especially without sight of the JV agreement - specifically the terms of the ROLR clause.

There is no way Shaun is selling Havieron off... And I think he knows a bit more than you Francis about raising the required capital.
Quality management, in quality juniors raise the required capital to build mines, on budget, on time, all the time in Australia...
It's only on AIM where there are so many train wrecks and problems raising capital ( in crap companies with crap management ).

Drilling it out was out of reach of GGP back in 2019... - but now we have an asset to leverage off... that's how companies are made.

Hydrogen:

As I understand it most, if not all JV's agreements have a similar ROLR, so should one of the parties to the agreement want out that others parties, and there can be more than one, have the right to buy the party leaving out, at the best price they can get in the market, not a penny more is required.

That said, the agreement that was drawn up was lead by Newcrest, not Greatland, and I am sure they wanted it as they never expected the sequence of events that have unfolded over the last year.

Yes Rotherby I get that... BUT

The problem, as everyone was so keen to point out, is that if GGP cannot comfortably raise the required capital to exercise the ROLR - becuase Shaun simply cannot raise that level of capital (i personally believe he can no problem) - but in that instance, then we have significant and viable options to regain full control.

1) Greatland could use Wyloo (or another's) money - via a loan to a GGP subsidiary - to exercise its ROLR option to take the 70% of Havieron and thus gazump any 3rd party bid. That renders Telfer an un-saleable asset and also severs the former dominant/subservient relationship with Newcrest, while freeing GGP / Wyloo to build a new mill at Havieron.

2) A significant strategic risk emerges to Newmont, in that option 1 automatically prevents Newmont inviting or accepting any 3rd party bid whatsoever. This is becuase the implied risk of separating the 70% of Havieron from - via LROR - directly exposes Newmont to a huge liability, (Telfer is so far proven itself as an un-saleable asset).

3) Therefore, Newmont IMO has no viable buyer other than Greatland. Or a combination of Greatland and Wyloo, or Greatland and a 3rd party (only of GGP's choice)

4) The above scenario also act as blocker or deterrent to any prospective 3rd party buyer, from even thinking about buying Telfer/ 70% Havieron, unless they make a large, simultaneous (and presumably extremely generous) bid for GGP, requiring the support of GGP PIs.

5) Newcrest cannot just sit on Telfer and 'wait GGP out' becuase they are in production, and need to shift it, and have long term contracts in place. Newmont cannot run Telfer into the ground. They have committed to delivering $2bn cost savings.

6) This means we should be able to buy Telfer at a steal (including the 70% as a compete package) at highly favourable 'mates rates' - becuase of a lack of fair market competition and the lack of other viable divestment options for Newmont.

That's pretty much the conclusion we came to at the TH. Interesting that the JV included a ROLR clause, almost certainly in my opinion a Newcrest demand...but actually it's to our benefit. Who saw that coming?

This ROFR power if exercised also potentially transforms GGP into THE Patterson / Havieron Broker dealer:

To follow that thought through: If no other bidder exists (for reasons previously outlined) then GGP can secure the Newmont 70% and sell any fraction it desires to raise money - say 15%, 30% or 40% at fair marker value, as required - to fund the mine development or pay down debt.

GGP would then essentially take the lead NCM type role, in bringing in a JV partner at whatever fraction / percentage Shaun decided.

AND finally be a bonafide 'free market' Havieron transaction.

I think SD wants to keep 100% of Havieron . But can see where you are coming from Hydro .. but take into consideration the fact we will be producing 300,000 oz of gold on average for the next 5 years at present conditions, but this could easily double depending on mine plan changes if GGP owned it all. Plus I am sure they could make Telfer profitable from what I have read so that could easily bring in another $100m per year profit. So paying off debt does not look like a problem. Could all be done in 5 years. Imho

Don't worry Lennie. I 100% agree he wants to retain 100% and within weeks of achieving that, IMO, he will drop a massive 6-7-8Mt DFS that will most probably shock the market. The truth has been suppressed for too long. But once we get full control the shackles are off...

Otto Jimmy Wilson and Paul Hallam not been twiddling their thumbs for the past 18 months.

And For anyone 'concerned' about the reality of financial stresses on GGP (like our friend Francis) the leverage they now have across these assets places GGP in a commanding and exceptionally robust financial position.

Finally, we are in control of our own destiny.

I agree.

SD has introduced such high calibre personnel. They are not there to play cricket!
I am certain they can see the whole potential.

Hi H2, as i have posted on LSE platform the other day we are in a unique situation that NEM cant squirm itself out of and for sure do not like being in this position where a junior partner can control the major partner.
The only options for NEM to get around ROLR is either to buy out GGP 30% of Havieron or buy out GGP entirely and all for an eye watering amount. Don't forget NEM would then have RIO as a JV partner and that will not go down very well either.
Tom Palmer stated in a recent interview that he wants all sales completed by year end and that suits us very well as the POG is increasing towards the projected 3000 usd oz stated by BOA.
Telfer can be expanded to keep it running by itself as i understand they have many small deposits in its tenements and also cobalt in huge amounts have been located which Wyloo would be very interested in. So all in all GGP are in the best possible situation to be in. DM

If you were Shaun - And you had ‘plans’ to be king maker and King Pin of the Paterson :- to consolidate the Paterson with Wyloo , by leveraging Havieron and GGPs LROR¦ ….Then what would you do?

Well - surely - at the first opportunity - you’d secure 100% of Havieron and Telfer? I expect this is most probably done or close. As it’s been in his sights from the beginning.

Then - what a week after securing 100% drop a whopping SLOS DFS and whip up the market with a dripping roast of a 6mt DFS.

Next - Get GDX on board and get major fund managers on board.

Then, within 12 months, do a $1bn raise on the ASX to expand everything and fund the build out a 6mt block cave in the northern Breccia... and let in the big ASX pension funds.

Before you know it Hav is the 2nd biggest mine in Australia and Greatland is the 2nd/3rd biggest producer on the ASX. Plus don’t forget the nickel. It has a huge future (as a Wyloo knows.)

And if that DFS was for say 8mt that’s going to shock the market. Double boom basically!!! Shaun’s been in the job for what 3years now. Time to show them the metal mate.

What do you think Paul Hallam, Otto Richter, and jimmy Wilson been working on for the past 18months..? (Because it ain’t two MREs is it - what? - a few month’s work - tops?).

I am sure , we are in a count down and I have mentally set 1 October 2024 for the final date so if it happens before all well and good.

Hydrogen: Your analysis aligns with mine, except for the $ 1b, and would be H A P P Y with that, at that point in time.

Then there would be no shorting activity and the share price would well past the ATH of 38p, all LTH would be rewarded for holding through some very difficult times, as now.

There has been times when I have wobbled, not enough to think Havieron would not deliver, but being a realist there is still a very small risk of Havieron failing, but the A Team at 502 Hay Street are not going to allow that unless it was totally unavoidable, as with geology but I think another way would be found as has been several times in the decline as Bamps can confirm.

Hydrogen - you talk about ROFR. So what is the difference between this and what GGP have which is ROLR - in terms of what you describe?

Secondly, even if GGP bought Telfer for a dollar, the cost of purchasing the remaining 70% of Hav would be considerable. Add to this the cost of then progressing Hav to production and then extending the SLOS out for another 'X; years BEFORE Bulk underground mining commences - means 1 to 1.5 billion plus BEFORE you even look at raising a billion plus on the ASX, 12 months from now. How is this going to be paid for?

Thirdly - if GGP can 'double' the production outage to 6mt days after the purchase of Hav (via their own FS) ........why won't NEM do this beforehand anyway to ramp up the saleable value of Hav in the first instance to all interested parties and get a shed load more money for it?
Z

One word - Zoros - Wyloo - their presence underpins everything in terms of finance. Newcrest was built on a single asset: Telfer.

ROLR is what we have. The example I provided last week - that news article about Barrick gold was called ROFR but in principle it means exactly the same optionality. Don’t get confused over ROLR or ROFR. “Rights of first refusal clauses are similar to options contracts in that holders are granted rights but not obligations. In this case, the rights holder has the right, but not the obligation, to match or refuse to match an offer already made on an asset by another party.”

Imo The banks will back us to purchase the 70% and fund Havierons construction with debt and Telfer’s cash flows.

I believe the sale of 70% of Hav Telfer is catastrophic mistake by Newmont - a forced error - and it cannot produce a fair market transaction for Newmont’s 70% because, I expect, there will be no other legitimate bidder. This is due to the fact the ROLR is over Havieron and not Telfer, meaning our right can in principle be used to leverage the two assets apart - highly undesirable for any bidder for Telfer or the 70%. IMO - The navigation of this negotiation will rely on the ‘good relationship’ Shaun describes , and make any other transaction next to impossible or redundant ( unless of course sanctioned by GGP/Wyloo). So wyloo could take 50%, for example..

So - In principle :

2mt up the decline is already baked in and 3mt up the decline at 4.2g/t (top levels highest grade) equivalent pays for everything. That’s circa 400koz of gold at imo likely gold price of a minimum $2500 gold - that’s going to be $600m in EBITDA. Plus whatever we can get from Telfer’s ongoing development.

3mt Shaun says is comfortably achievable up a decline. And $600m - this Cash flow Pays for everything you could possibly want…including future bulk underground more developments at Telfer, Including all debt obligations, new conveyor declined or (haul shaft) built in two separate stages. Keep in mind Telfer itself can be a 350koz producer in addition to the incoming high grade from Havieron. It’s a massive plant designed for up to 24mt. That could make the combined Telfer / Havieron project entity 500-700koz even 800koz for some years even before Havieon is fully expanded.

I suggest the Havieron “expansion” DFS corresponds to an expanded SLOS mine at Hav for 6-7-8MT in an updated DFS I mentioned, as per the Sprott note . Bamps suggests grades will be slightly lower but bulk volumes and the expanded mine life will make up for that. I suspect this is already being written up by Shaun’s team in detail (and will have no doubt informed the Sprott note authors).

A 2nd conveyor decline will take less time to build than the current exploration decline has (as it’s smaller x-section for smaller vehicles 3m high opposed to 6m) and it can be commenced on multiple fronts - surface, middle, and bottom all concurrently or simultaneously.

Look at what Sandfire resources achieved at Motheo in Botswana - for a $350m spend through the inflationary period of 2022 and 2023… a huge 5mt operation in a new jurisdiction , requiring power supplies, roads accommodation , 2 massive open pits with significant stripping ratios, plus constructions of a 5mt mill and processing plant. I believe the Newcrest PFS Hav costs will come down - as Shaun takes over - and not go up as the shorter accounts suggest. We don’t have a mill to build - no accommodation village, no parts and spares workshops, no airstrip and much of the surface infrastructure is already complete.

My thinking for a $1bn ASX raise could come later on than anticipated (potentially even after the acquisitions as Shaun requires further devilment capex funding - whether to expand the SLOS with a shaft or build a sub level cave somewhere (northern breccia or Easter Breccia) - and yes while this is several years ahead from today for production, it doesn’t preclude an early PFS / DFS being released several years prior to maximise value and project scope for any ASX raise.

Shaun says he is confident he can “scale the debt” on better terms due to owning 100% of the asset. I personally believe him. His Disciplined cost management at Telfer will produce immediate cash flows. Telfer’s low grade bulk operation also provides absolutely torque to the new higher gold price environment.

Exciting times ahead and I fully expect Shaun to deliver big time once he achieves full control. He once said to me that if “he had produced that NCM PFS while at Northern Star he would have been taken around the back of the office and shot”. Apparently Newcrest literally have an 'idiots guide' called “How to mine gold” and everything is done according to their daft rule book profitable or not. Very limiting and totally lacking in all strategic imagination - this concept provides immediate opportunities for a dynamic approach at Telfer for Shaun to execute … Once again... Imo This will all become a very different proposition, very suddenly.

I’ll leave it there.

Obviously I have no specific evidence this will all happen it’s just my opinion - optimised thinking on what could well play out having listened very closely to Shaun and thinking it all through - but always DYOR.

I agree with you Hydro. We need someone who thinks out-of the-box, versatile thinker. I too believe Shaun is that person. There are always several solutions to a problem. Following the book is not the answer.

?

I’m not asking you to put your name against anything Bamps - where do you get that from?
.
I’m suggesting this is coming from within the company and their analyst coverage - who probably know a little more than you?

The more ore you pull from Havieron the more metal you will get out - that’s just a fact (even if it’s lower grade so long as it’s economic to do so).

Let’s see what Shaun delivers.

3Mt is a absolutely massive mine that will be hugely profitable for many years …

He could drop a 3Mt DFS followed a week later with an 8mt expansion DFS (with the addition of a 5mt haul shaft..)

Sorry but the fact is You cannot say that is not possible or not viable. And further, I know, from the horses mouth that it is.

I agree with you Hydro!
Your views are your views ony!
You are expecting a £1Bn (post ASX) begging bowl loan on top of the money needed to buy Hav and run with it into the SLOS proper! So we're looking at what - £2.5bn+
You have then magically DOUBLED the SLOS output (via a dfs) immediately after buying Hav, as if it has been kept as a secret by Shaun all this time and NEM didn't know about it???

You know full well that the SLOS cannot physically cater for/facilitate more than 3mt. You know that ...and yet you pump out this garbage as if it is fact and written in stone? The funny (or maybe disturbing) thing is......others hang off your every word!

Only bulk mining will ramp up the output and that as Bamps has tried to tell you is years and years away. The current decline cannot cater for more than 3m tonnes - endex.

Think carefully - stop misleading peeps and stick to practicalities not pie in the sky...too many peoples hopes ride on what some people on these forums say.

Z