You typically see these contingent royalty arrangements in deals where there is very significant execution risk for the buyer in effecting a turn around of operations - if we look at the mine production for Hollister over the last 12 months - it screams execution risk. The auction arrangement looks like nothing more than confirmation of this. Unfortunately, Burnstone has the same fundamental problem. When there aren't any large creditors in the room, I actually like these contingent royalty streams because the market significantly undervalues them. When there are large creditors in the room, I hate them.....because the market significant undervalues them. In both cases, they are an asset of the estate - when there aren't any creditors left unpaid with cash, they can go into a liquidating trust for future possible benefit of shareholders - when there are creditors left unpaid, they go to the creditors in satisfaction of debt.
Edit: one of the big things that remains apparently in limbo is the % on the NPI. According to the APA, the Net Profit Royalty agreement has not yet been finalized, though I suspect they have a number in mind. What that number is I have no idea. The only thing I'm sure of is that it is sweet enough to induce CS to go along.
AI
