Less than 12 hours after I published my rationalization of purchasing First Uranium debentures in my TFSA, they released an adverse piece of news stating that their environmental permit for their tailings mine (which they subsequent reprocess for gold and uranium because prices have made it economical) was revoked.
The equity is down 23% as I write this; it brings their market capitalization down to $344M, which means that if shareholders wanted to capitalize the debentures, it would cost them 30% of the company instead of 25% the day before.
The debentures, however, remained within the bid-ask spread. Currently they are quoted as 75 cents bid, and 78 cents ask. I tend to trust the debt markets more than the equity markets in terms of true valuations.
It might actually be a good time to look at the equity as a more serious investment candidate if I was a little more risk-taking, but I will be continue to be happy with the debt. The foreign country operational risk is something I find very difficult to quantify and measure beyond a “gut feel” and this is the overriding factor in my decision. I believe something “political” is going on with this news release, but I have no way to judge whether it is a genuine operational aspect, or whether some politician is trying to wring a campaign donation out of the company or its management.
I wonder how you’d compare First Uranium debt with ssi.db. At todays bid it offers a coupon of 8.6% and around 10% appreciation till term end.
They are convertible and unsecured which doesn’t sound as safe? Sterling also has lease commitments which are substantial in the coming years. Any idea the heirarchy of whose paid first in a liquidation?
My guess is?
Current liablities
Convertible debt holders
Lease holders
Common
All this assuming of course that they also assuming they can actually get close to $40 million for the inventory they have.
I did look at SSI, but they appear to be more riskier at their present price. For one thing, SSI can’t easily equitize their debt by virtue of having such a tiny market capitalization.
You’ll have to read the terms of the debenture offering and/or the annual report to figure out the seniority order, but capital leases are not usually secured by anything other than whatever is being leased itself.
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