Forum Topics CAI CAI General Discussion
a month ago

[Hold MAH IRL, not CAI]

@Bear77 What's your take on MAH converting $10.5M of receivables owed by CAI into a significant equity stake as part of the CAI cap raise? You commented in your recentish bear case straw that CAI's cost of production was relatively high even after factoring in their reduced cost target, but MAH seem extremely bullish on CAI and their part in helping to optimise operations + reduce cost of production.



a month ago

@loshell I saw this and thought the same thing -- I wonder what @Bear77 thinks of this!

My thinking is that McMahon might have taken the credit for equity swap as they are confident that they can get the gold out and they probably assessed the risk of not getting paid at all if Calidus couldn't raise enough to keep them going. They burnt $5m in the last half on $100K of revenue.

I did a quick search of calidus and their last few quarterlies and presentations, and my quick conclusion was that they are uninvestable for me. It took me too long to find what their cash position was like. A cashburning company that gives a quarterly update without an update on their cash position and debt fails the trustworthy management test in my opinion.

I didn't like this graph in their capital raise presentation -- implying they are undervalued is to my mind at best misleading and at worst decietful. EV/Production can't really be compared between companies that have profitable mines like CMM, who are currently spitting of heaps of cash and SBM or Calidus who are the opposite. I took from this graph that they are actually still expensive given their cash burn and pretty thin margins. The stage 3 is still a ways off so including these numbers in a cap raise, where the money is for working capital is really just trying to paint the nicest picture.

I also didn't like that they seem to be chasing Lithium, I could be wrong here but I think small gold miners chasing the fad mineral is a red flag. Yeah sure, Ramelious might have been better off if they had kept the Kathleen Valley deposit instead of selling it to Liontown for $30m, but I still think they did the right thing and I remember the management team saying at the time that they can't focus on everything and that they know how to run gold mines.

But, maybe, I am just being cranky this morning :)



a month ago

Hey @loshell and @Slideup - we've just returned from our long weekend getaway to SW NSW - around Wentworth (NW of Mildura), with some day trips, including to Mungo National Park - photos below:




Mungo NP was very interesting, and so was seeing how the communities along the Murray are getting back on their feet, and getting back to normal. There is still a huge amount of cleaning up and rubbish removal to do in some of the worst affected areas, but people are back on the River and the River levels are fairly close to "normal" again.


We used Wentworth as our base, and that's where the Darling River flows into the Murray River, the junction of Australia's largest (and longest) two River systems, and here (below) is a photo of that junction that I took on Saturday.


The Darling is on the left and the faster flowing Murray is on the right. To the right of the picture it is just the Murray from there to the Murray Mouth at Goolwa 825 km downstream from here - see here for more details: The Darling River’s contribution to the Murray | Murray-Darling Basin Authority (

The slower flowing Darling (left side above) is clearly still very muddy from the recent floods while the Murray above the Darling intersection is a lot clearer, although it's certainly not clear water. Have a look (below) at how high the water level got here in recent months.


The bark on many trees has peeled off, but some, like that one on the right (above) do show where the river mud has lightened the bark and the level it got up to. Below are a couple more trees - I simply swiveled to my left to take this next photo, from about the same spot.


The level on the left side tree looks higher but it could be the angle of the shot, and of the trees - neither are growing straight up. Also, the mark on the left tree might not actually be flood-related - it is one of those that is losing bark. The one on the right shows clear bleaching however. This entire car park was underwater for much of December through to February, and was closed. It has recently been cleaned up enough to be reopened to the public, and the grass is already growing back through the silt that the River has left behind. Not everything has been reopened however. The clean-up is continuing.

Anyway, back to the subject of this forum.

I think you're spot on @Slideup that CAI has poor management and is not a particularly good company, and Macmahon (MAH) would be unlikely to get paid what they are owed already if the Calidus Resources (CAI) recapitalisation was not successful. Therefore, MAH management would have thought that taking an equity stake in CAI might be the best chance they have of getting some of their money back out at some point. It pays to remember that Macmahon's MO or preference is always alliance-style contracts (partnerships) and preferably for LOM (life-of-mine) - which usually works out positively for them (Tropicana, Batu Hijau) but occasionally does not (Telfer, up until recent years).

Another company that I used to own shares in who liked to take equity stakes in their clients occasionally was MACA (MLD) who recently got acquired by Thiess (and Thiess is half owned by CIMIC, who used to be called Leighton Holdings, and CIMIC are owned by Spanish contractor ACS). But there are other examples. NRW Holdings (NWH), who I hold shares in, are still substantial shareholders of Gascoyne Resources (GCY) after doing much the same thing, converting money owed to them into shares during a recapitalisation. Recently (in early March) Gascoyne issued more shares (raised even more money) and diluted NWH from 8.67% down to now 6.07% of GCY. NWH did NOT elect to participate in THAT raising - which would have involved actual cash rather than a debt-to-equity conversion (a.k.a. equity for debt swap).

I think the reasons are pretty obvious. The mining contractors swap debt (revenue they are owed but have not been paid) for equity to secure the short-term future of their client (the mine owner) because it gives them (the mining contractors) SOME chance of getting some of the money owed to them back. If they chose not to do it, the amount that the mine owner would need to raise would increase, and they might not be able to raise the money, and would then likely go broke. Often the mining contractors are one of the largest creditors (in terms of actual millions owed) that the mine owners owe money to, and a recapitalisation has to satisfy all creditors (or at least has to be agreed upon by all creditors even if they are not entirely satisfied) because any one of them can individually seek to have a company wound up if they can't pay the money they owe when it is due (or overdue) to be paid. But the largest creditors are the most important ones clearly, and mining contractors are often one of the largest or are the largest creditor (are owed the most money by the mine owner) as was the case here with CAI and their mining contractor, MAH.

I guess it's also good to remember that in both cases (NWH with GCY, and MAH with CAI) those mining contractors did not put in any fresh capital, they just agreed to accept shares as part of the capital raising (recapitalisation of the mine owner) in exchange for money that the mine owner owed to them for services (contract mining) already provided beforehand.

In terms of risk, the mining contractors aren't throwing good money after bad, not in terms of actual cash, however there is clearly a risk that these mine owners (such as GCY and CAI) do eventually go bust, and the mining contractors (such as NWH and MAH) end up with worthless shares plus an even greater debt owed to them that won't ever get paid. So the risk is there in that regard and the fact that MAH is prepared to keep doing contract mining for CAI at Warrawoona - and that NWH is prepared to keep doing contract mining for GCY at Dalgaranga - indicates to me that MAH & NWH can see a future in which CAI & GCY can become profitable gold miners and possibly even acquisition targets for larger players in the space at some point in the future.

But it's hard to tell for certain. I think it probably boils down to trying to make the most of a very unfortunate situation in which there are few options available. If you can keep the mine owners operating as a going concern, even for a small period of time, there may be more options available in the future, but if, on the other hand, the mine owners call in the administrators or receivors, then there's almost no chance that the mining contractors can extract themselves with no damage. When a company is wound up, unsecured creditors (like mining contractors) often end up getting very little or nothing. Often they get nothing.

So in a situation where the mine owner has suspended their operations and attempted to recapitalise the company so they can keep operating as a going concern, the mining contractor - when they are owed millions by the mine owner for contract mining already performed - are probably going to do everything within their power to try to ensure that recapitalisation of the company that owns the mine (and owes them money) succeeds.

I guess the exception to that would be when the mining contractor has made the assessment that there is little to be achieved by extending the life of the mine owner because they are very likely to go broke anyway because either the management is so poor or the asset (gold project/deposit) is so poor - or else the gold is too hard to extract from the ore economically. In that instance, the contractor would likely not want to tie up their equipment and personnel any longer than was necessary, when both the equipment and the people could be redeployed into actual revenue-generating work elsewhere, and they would also not want to risk the mine owner running up another debt (money owed to the contractor) that would be unlikely to ever be paid.

So we can probably safely assume that MAH don't think that scenario is the current situation at Warrawoona (with CAI) and NWH didn't think that last paragraph applied to GCY and their Dalgaranga gold project at the time they agreed to swap money owed to them by GCY for GCY shares (when Gascoyne recapitalised).

However, I don't think that automatically equates to those contractors necessarily being seriously bullish on those gold mine owners.

I wouldn't buy shares in GCY or CAI. I don't trust their management, and I don't think they have outstanding gold projects. They might have "OK" gold projects, but why invest in those (unless they owe you money and you're converting debt to equity) ? When there are far better options available to invest in?

In terms of MAH, have a look at this recent announcment of theirs from 31st March: Macmahon-Extends-Contract-for-the-Martabe-Gold-Project.PDF

In that announcement - about the 7 year extension to their mining contract at the Martabe Gold Project in Indonesia - MAH said the following: [note the bold stuff has been highlighted by me, not them]

"The contract extension commences on 1 April 2023 for a seven-year period with the option to extend for a further two years. It is expected to generate revenue of US$350 million in the first seven years, adding to Macmahon’s secured order book. 

The Company’s FY23 underlying earnings guidance of $105 million to $125 million remains unchanged. Contract extension capital expenditure is included in the FY23 sustaining capex budget. However, prepayments relating to FY24 sustaining capex in the amount of $4 million have been made to secure long lead time FY24 equipment deliveries. 

Macmahon will continue to integrate safety, environmental and social considerations into our operations at Martabe and looks forward to continuing this work in partnership with PTAR and the local communities on all these areas. 

The contract value of the successful extension at Martabe and other recent contract awards in FY23 total approximately $2.5 billion which exceeds Macmahon’s FY23 order book run off. As a result, the Company is better positioned to strategically pursue low capital intensity opportunities."

--- end of excerpt ---

I highlight that simply to put this CAI stuff into some context - to give some perspective. The following is from Friday's announcement (by MAH about the CAI CR):

"Macmahon’s participation in the Calidus capital raise is by way of converting $10.5 million of existing receivables to equity, after which Macmahon will become a substantial shareholder. 

This ownership will provide upside to improving Project performance which is consistent with Macmahon’s intention to leverage opportunities to further integrate with key clients, reinforce our core business and generate increasing shareholder value."

--- end of excerpt ---

The last line is the official spin. The main thing to note there is that this is a $10.5m equity for debt swap - remembering that the $10.5m was revenue earned by MAH at Warrawoona, not earnings/profit; the profit (earnings) on that $10.5m of revenue, if that revenue had actually been paid by CAI to MAH, would have been closer to $1m and possibly as low as half a million, assuming that they would have made any profit at all because this was an early stage contract and often the profits don't flow through until the second year due to the initial equipment procurement and deployment, personnel training, and other general new contract start-up/establishment expenses incurred by the contractor at the start of the new multi-year contract. And MAH is a company that had a $5.6 Billion order book at December 31st and has recently added another $2.5 Billion to that order book via further contract wins that exceed their FY23 order book run off (contracts that have been or will be completed or are otherwise ending this FY). MAH is also a company that has recently (on March 31st) again confirmed their underlying earnings guidance for this current financial year of between $105 and $125 million - on revenue of around $1.85 to $1.95 Billion ($1,850 to $1,950 Million).

That puts this $10.5m debt-(revenue)-to-CAI-shares-conversion (equity for debt swap) into perspective. It's tiny in the overall scheme of things for MAH, and not really very material at all.

Basically, it's not material for MAH.

It's big for CAI - whose market cap is around $99 million (according to the ASX website just now) but not to MAH whose market cap is $323m (@ 14c/share) with an order book of around $7 to $8 Billion and annual underlying earnings of circa $115m on annual revenue of circa $1.9 Billion.

So, no, @loshell I don't think I would term MAH as "extremely bullish" on Calidus, they're just making the best of a bad situation, and it's not even material to their guidance numbers.

You do raise some valid points about Calidus management there too @Slideup - these smaller companies often are not comparing apples with apples in their presentation graphs and tables, as you have correctly highlighted in your post (which should appear directly above mine in this forum thread) - especially in ones that are wacked together as part of capital raisings. And I also concur that CAI is not a company I could invest in at this point, knowing what we know. They're uninvestable for me also. They could be a high-risk speculation (not for me, but for somebody who likes that sort of thing), but not a solid investment for an ordinary retail investor.

I own shares in Macmahon (MAH) and in NRW (NWH), both here and IRL, but not CAI (or GCY).

Since you were wondering, that's what Bear77 thinks.

P.S. Have a look at the MAH 1-year chart:


I'm not currently trading MAH (it's a buy and hold for me both here and IRL) but it looks like a good trading stock doesn't it?! BUY at 13 to 14c (where they closed yesterday) and SELL at 17 to 18c/share. It's around a 30% gain every time, and it's been trading in that range all year. And my personal opininion, for what it's worth, is that there's upside beyond 19c/share for the patient, but I am of course biased, as a MAH shareholder.


4 weeks ago

@Bear77 Belated thanks for your insights and the awesome pics of your holiday. Enjoyed reading through both a lot :)