Sirius Minerals Share Discussion Threads

[ppvn] 12/4/2018 15:18

Also I seem to remember Sirius talking of additional funds for stg2 that would enable the buyout of a dock directly so don't think it's overleveraging or access to cash. The gov't guarantee I believe would be achievable as well, this project is set to contribute something like 7% to GDP, honestly I'm at a loss at the moment, which is a bit frustrating.

[ppvn] 12/4/2018 14:51

Hi Casapinos! Long time no speak! I'm genuinely stumped as to the rationale for this offer so let's see what's on the table. The RNS justifies the reasons as 1. Reducing outstanding debt in advance of stg2 2. Additional escrow cash 3. Reducing hedging 4. Reduce overhang. Let's examine in turn.

1. Reducing debt in advance of stg2. So I can see good reason for this, but I don't see why our bondholders would care, if it was economically not in their interest. So with that in mind,
- Does the premium offered justify converting early? In my mind, to convert to shares thus losing their hedge and 8.5% coupon does not.
- Is there a buyer? We shall see in the aftermarket volume in the next few days I suppose.
- Could Sirius be raising straight debt at a lower interest rate? Perhaps, but then why wouldn't they offer a larger incentive to convert? Or buy back the bonds at a higher price in cash using stg2 debt?
- Is there another CB offering in the pipe with stg2, and will converting bondholders get allocations for being excellent investors?
- Is there interest in providing sirius with debt facility for stg2 or is the view they are overleveraging? I don't personally think $3bn is unreasonable to raise given the projected cash flows in around 5 years.

- edit: re. You're point about escape from bad news, no I don't believe so. If there was bad news of some kind, why would Sirius care if their bondholders lost money on their CBs, similar to why would CB holders care if sirius wanted to cash them out at a lower rate to help sirius.

2. Release of escrow cash
- We are talking tens of millions here, so this seems a fairly woolly justification to my eyes. Nice, but hardly a reason for this to happen.

3. Reduce hedging activity
- Shorts are being closed as bonds are converted anyway, so this seems no reason to call the bonds early.

4. Reduce overhang on Ord shares and unwinding hedging
- Hedging is part of point 3 above
- Overhang is more interesting, and brings me back to a possible buyer. If someone was looking to buy millions of shares, our CB holders are the ones to buy from, but they are dripping shares into the market as we see in the volumes post close. We saw 106mm a few weeks ago, so someone is buying at least that many. This could to my mind be a reason, I.e. rather than spending weeks with a buy order hanging out there and being taken in drips and drabs, get the shares from the CBs, take the incentive shares to make good the coupon, and walk away with a hefty return. Let's see in the aftermarket volume.

I don't know the answers to any of the above and it's just speculation. But it's very interesting, and something is for sure going on. Fingers crossed it's good.

[phowdo] 12/4/2018 14:39

They've probably been given first dibs on 2nd stage debt.

[casapinos] 12/4/2018 14:29

Hi PPVN I cannot believe that SXX have made this offer to the CB holders without first having canvassed them to ensure a positive reaction , after all a derisory takeup is going to look like incompetence isn't it? Therefore, can we assume that takeup will be high? So as i am sure your analysis of the financial disbenefit to CB holders is sound, what are they getting out of it ? An escape before bad news? An even better deal for ST2? All the tomatoes they can eat?

[ppvn] 12/4/2018 14:04

A brave call! Good luck with the short and kudos for posting, though I hope you lose! Guessing game at the moment :-)

[janekane] 12/4/2018 14:00

Opened a small short

[ppvn] 12/4/2018 14:00

Discojames, agreed, however economically their bonds represent 650k shares and they carry an 8.5% coupon. So if they wanted to be long sirius, they'd keep the bonds as they are still convertible into shares and they would still keep their coupon. So I don't see why they'd do that.

[discojames] 12/4/2018 13:53

Taking the offer doesn't mean they have to sell the shares immediately

[mr.oz] 12/4/2018 13:53

I'd not say overly suspicious at all PPVN. This has been orchestrated and the limited time on offer suggests prior agreement and knowledge may have been required ; to what end?

[mark_jm] 12/4/2018 13:52

I have just joined the party here at 27.5p, good luck all

[y1phr1] 12/4/2018 13:48

All Will come good in time. The share price goes up and down all the time for all sorts of reasons. This dip to me is an opportunity. I am really confident in this stock and will keep topping up even if returns to the twenty's which I very much doubt , good luck all longs.

[ppvn] 12/4/2018 13:46

The 85% clean up call would just mean Sirius put out a notice saying they will redeem the bonds at par unless converted by a set date - the remaining 15% would then be converted. 100% of these bonds will be converted to shares, whether this offer is taken up or not. On rereading my previous, sounds overly suspicious at the end. I'm still personally of the view sirius have a great future and will continue to hold my shares, I'm just venting as I don't see why our price is moving as it is (and yes I know there are currently more sellers than buyers)

[trims2] 12/4/2018 13:42

>> But I expect them to take it up, which begs the question of why. What are they getting out of it?


Might there be an element of time-pressure, that if a CB holder were left in the final 15% after the other 85% had already converted, then the residual mop-up deal from the company would be disadvantageous for them. So better to be out a bit earlier, and avoid that?

[11_percent] 12/4/2018 13:37

Yes, I did wonder about CF being at DB conference.

[pazzuzu] 12/4/2018 13:35

Yeah PPVN it's all ll a little too fishy to me alsoo

[ppvn] 12/4/2018 13:33

Y1phr1, think there are many people positioned the same. I was long at 18p, long at 35p, long at 22p etc. Topped up modestly below the strike of the c/b's at that time but I am already overexposed to this share to be honest. Today's price action has no bearing on me, but it doesn't change the fact that I'm left wondering the reason why. Contrary to what some people are saying it is not to have been expected; the simple fact is at this price our CB holders are economically worse off thus I would assume they would not take up sirius' offer. But I expect them to take it up, which begs the question of why. What are they getting out of it? If a buyer agreed to take all their remaining shares I could understand it. If the share price was up, I could understand it. But it isn't, so I do not. Some dealings are going on and we are not privvy to them. If there is a holdup or stg2 requirement that Sirius must be debt free, that's no concern of the CB holders and economically they would take the route more profitable to them (I.e. keep their bonds). Why was CF at the DB convertibles conference last month? Is there to be another tranche of CBs in stage2? Have CB holders been granted an allocation on the condition of agreeing to this early redemption? So many unanswered questions. But as NMRN says, in time all shall become clear.

[lendmeafiver] 12/4/2018 13:31

25% was somewhat optimistic last night Ppvn, maybe there is newsflow to come

[y1phr1] 12/4/2018 13:24

Like yourself PPVN I am also long on sxx but I shall keep topping up on dips. Long term this will be a very lucrative stock.

[ppvn] 12/4/2018 13:01

I still don't really see why any CB holder would convert into shares to then sell - it was no secret they had to sell the corresponding amount of shares as the remaining bonds outstanding, and to take up the offer at this price seems, to me, highly counterintuitive. Lose your coupon and sell at a lower price? Who'd take this offer up? Thanks for everyone's comments, interesting day! Come on shareprice, go up 9p and save my tattered reputation! Haha!

[11_percent] 12/4/2018 12:57

He also declined to look at his Level 2 and give the data.

[mr.oz] 12/4/2018 12:45

Johnstupid declined to offer an opinion ahead of today's reception of the news

And also declined to cut and paste the IC comments for some reason

[grahamburn] 12/4/2018 12:42

From Investors Chronicle daily round up:

With its shares trading at 30p, Sirius Minerals (SXX) has issued an invitation to holders of its outstanding $400m of convertible bonds to offer up their conversion rights. As the company notes, the debt is trading well in the money, and conversion would allow the prospective potash miner to reduce its outstanding borrowings ahead of stage two financing, release some cash held in escrow to cover bond interest payments, and reduce bondholder shorting activity. Predictably, the shares are off 4 per cent today, and we would expect to see further selling pressure in the weeks ahead if the offer is accepted. Long-term buy.

[phowdo] 12/4/2018 12:27

NMRN, it from JP Morgan (quoted by ftalphaville)

"
SXX is offering an additional number of shares
equivalent to a 1-5% premium to parity which compares to the headline coupon rate of 8.5% pa. The CB matures in Nov’23 and there is an aggregate $308m outstanding. CB holders will also receive a mandatory “make whole” amount.
Our first take is that the offer is opportunistic. The CB spot price is ~$145.2, which is trading in line with its intrinsic value (par value of $139.1 plus the “make whole” payment of ~$6.4). As such, SXX is essentially offering 1-5% upfront for a net interest saving of 8.5% pa (i.e. the CB coupon rate). For CB holders, they are giving up an 8.5% pa yield (for the next 5.5yrs) for what is now essentially an equity instrument, given the spot price of ~$0.43/sh vs. strike ~$0.31/sh.
For SXX, the offer could result in a net interest saving, whilst at the same time, simplifying the
capital structure at an attractive price which, at the margin, could be helpful ahead of Stage 2 funding. However, in the short term it may result in share price pressure. To put this into perspective, we believe a reasonable assumption is that CB holders are, on average, 80-90% hedged. Assuming participating investors aren’t “natural SXX holders” it would imply net length of c1-2% of issued capital that may need to be liquidated per $100m of participation, or 1.5-3.0x average daily turn-over.
Implications on CB holders: Whilst the premium is small vs. the coupon rate, the CB becomes callable from Dec’18 at an effective spot price of ~£0.38/sh (vs. spot £0.30/sh), which would attract nil premium, and there is also a risk of a “clean up” provision that would automatically trigger callability if the aggregate CB outstanding (currently $308m) falls below 15% of issuance (or $60m).
"

[not my real name] 12/4/2018 12:21

chrisatbirdies,

Bond holders converting won't reduce the share price ............unless they sell them!

Edit: The "forced" conversion price is 25p plus a bit of bonus. Last nights closing price was 30.2p. Short today and pay back at 25p. Makes sense to me!

NMRN