New Buy: Palladon Ventures

This is actually an old purchase that I had sold out of. Today’s press release confirmed my initial thesis on the investment. I bought a very small stake, less than 1%, on PLL today. The company has started shipment of iron ore and figured out all the parts of getting the product shipped to the port, Richmond, CA. The first shipment should be completed by July 2010. If all goes well, we can see major increase in shipment.

11 responses to “New Buy: Palladon Ventures”

  1. Could i confirm with u that PLL.V holds only 22% of the new company?

    Due to the debt convertion by Luxor Capital Partners, LP. Am i correct to say that?

    • Yeah PLL owns 21.7% CML Metals Corporation. Also, based on the agreement w/ Luxor in Dec ’09:

      “Furthermore, in the event that Palladon does not exercise the Payment Option on or before March 31, 2010, it shall have a three-year option to purchase 50% of the Luxor Equity for $18.75 million.”

      So if the July 2010 test goes successful and based on the full shipment starting thereafter I can see PLL buying back 50% of Luxor’s interest.

  2. How much of PLL market cap do you think will be reasonable when shipment starts and volume increases?

    Compared to current market cap of 10M

    • The amount of shipment for PLL after July 2010 is not clear. I’ve read that the company could do $20 gross margin per ton. This wasn’t based on the Richmond, CA shipping point. So the margins could be lower based on the costs to ship.

      I would not look at the current market cap to compute any estimates. I expect the company to have major dilution in the near future. Instead I would look at the engineering study done in Sept 2009. Based on the study (which is available on their website), the pre-tax equity value of the CML and stockpiles is $727 million. That would be $152M (21% of 727M) for PLL. PLL has a market cap of 10M and roughly 40M of debt. Also, the engineering study was performed on only 20% of Palladon’s total compliant and historic resources. So total value of PLL could be substantial.

  3. If i am not wrong, PLL is debt free. They exchanged 78% of the lron mountain project for release of all the debt since CML took over.

    Yes i am also looking at such a valuation. Hope things will be good.

    • After due deliberation, on March 15, 2010, the Board of Directors voted unanimously to consent to the March 15, 2010, Satisfaction and Settlement Agreement (“the equitization”), whereby Luxor would realize on its security interest and convert its $40.55 million of indebtedness into a 78.26% interest in Palladon Iron Corporation, and Palladon Ventures Ltd. would retain a 21.74% interest in Palladon Iron Corporation. The Board believes that this approach provided the best outcome for shareholders and avoided the foreclosure proceedings or bankruptcy filing that otherwise appeared inevitable.

      • You are right. PLL has no debt and owns 21% of CML. Luxor owns 78% interest. PLL has 3 years to buy back 50% of Luxor’s interest. If PLL does buy back the interest, which I think is very likely, PLL will end up w/ 60% interest in CML.

  4. i cant find any sources which says PLL have the right to buy back 50% of luxor interest.

    it seem to be an old contract which is no longer valid with the debt for equity exchange.

    could you confirm it? of coz if u are correct, we are in got a great deal.

    • Based on the April 6 ’10 press release, the Luxor conversion of debt to equity still leaves PLL w/ 25M of debt to Luxor. “On December 4, 2009, the Company executed a Letter Agreement that provided it the option to retire the entire Luxor debt at a significant discount prior to March 31, 2010. This agreement also provided that if the debt was not repaid at the discounted value by March 31st, then Luxor would write the debt down to $25 million and also receive a 50% interest in Palladon Iron Corporation (“PIC”). ”

      The December ’09 agreement w/ Luxor states that “Furthermore, in the event that Palladon does not exercise the Payment Option on or before March 31, 2010, it shall have a three-year option to purchase 50% of the Luxor Equity for $18.75 million.”

      • From my research, it seem that there is no longer any agreement between Luxor / CML and PLL with regards to any equity exchange.

        PLL is now debt free and owns 22% of CML thats all..

        Looking forward to the updates whereby shipment is done and if they will be getting more orders..

        the construction of the mill to create iron ore is the deal here i suppose.. but could take a couple of years before it materialise.

        Your comments?

      • My understanding of it is PLL can buy back 50% of Luxor’s interest in CML. I will verify this with management.

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