Such a question is impossible to provide a definitive answer to, of course, but there are certain signposts in the case of Vast that give a clear indication of the direction of travel.
The first is the complex re-financing discussions that continue to make progress, although they’re not over yet. The company has been having constructive talks with its lender, Atlas, and with an international banking institution in regard to the provision of new asset-backed finance, and has recently moved to tidy up certain minority interests relating to its assets in Romania in order to allow the talks to proceed more smoothly.
The second, and more significant signpost to a re-rating is the very reason that Atlas felt able to get involved with Vast in the first place: the prospect of significant future cashflow.
For some years now, Vast has been a twin-headed company, with a significant portfolio of assets in both Zimbabwe and in Romania. The Zimbabwe assets have been whittled down somewhat, but the key project is now the Chiadzwa Community Concession in the Marange Diamond Fields. This looks to be quite capable of throwing off revenues of over US$13mln per quarter on expenditures of just over US$7mln.
Progress in finalizing an agreement on the Chiadzwa Community Concession has been slower than was initially hoped, however, in part because of the chaotic global impact of the coronavirus.
Over in Romania, however, the other primary target for the first tranche of the Atlas bonds, is the company’s Baita Plai polymetallic mine, which has been coming on leaps and bounds this year. The market watched with bated breath as key equipment shipments from China made it through to the mine in the spring and summer, even as the rest of the world’s supply chains were shutting down.
Since then, that equipment has been installed and commissioned, and the project is now up and running and in production. Next year the company has guided that Baita Plai will generate approximately US$19mln in net revenue giving a surplus of just under US$9.5mln after development costs, and that will be followed by an uplift in 2022, when net revenues will rise to over US$20mln with a surplus after development costs of over US$12mln .
Add that projected revenue from Baita Plai to the potential US$50mln-plus annual revenues from the Chiadzwa Community Concession, and the possible asset-backed debt financing facility from the international banking institution, as well as the associated payment terms, begin to make more sense.
So, what will happen now?
Should a company that’s potentially capable of generating more than US$70mln in revenues per year by the end of 2021 still be valued at just under £25mln?
While the negotiations with the international banking institution continue towards their solution, the answer may well be yes. But it’s worth considering what will happen after they’re concluded. One of Vast’s key objectives in the negotiations has been to convince Atlas not to convert its debt into equity, which it has now done, following the signing of a non-conversion agreement in the second week of November.
That announcement was accompanied by a hint about the asset-backed financing deal that Vast is pursuing, which in turn will allow it to settle the principle outstanding debt with Atlas by the end of this year.
The key question that remains, of course, is how much of a hit shareholders will take when the re-financing negotiations are complete. The hope has to be that with future cashflows from the Chiadzwa Community Concession and Baita Plai looking so healthy, Vast has been able to go into the negotiations with a fairly strong hand.
Nevertheless, the tidying up of the minority interests on the Romanian assets does suggest that whatever accommodation is reached will involve the ownership structure there. If still ends up owning a significant or even a major chunk of the Baita Plai revenues, then it’ll be easy to regard that as a win, and the shares will no doubt rise accordingly.
By how much will depend on the precise structure of the deal.