# HSK - Heemskirk Consolidated



## Hedders (12 October 2009)

I couldn't find any thread on HSK but I'm wondering if anyone else is watching this stock. Today it went up by over 20%, with no new announcements since 9 October (which had little impact on the SP on the day). The volume traded today was the highest daily volume since the end of 2005. Buyers outweigh sellers 3:1

Can anyone explain the sudden interest in HSK?


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## Donga (12 October 2009)

Hedders said:


> I couldn't find any thread on HSK but I'm wondering if anyone else is watching this stock. Today it went up by over 20%, with no new announcements since 9 October (which had little impact on the SP on the day). The volume traded today was the highest daily volume since the end of 2005. Buyers outweight sellers 3:1
> 
> Can anyone explain the sudden interest in HSK?




Their announcement on Friday may have got some attention. I recently sold my shares in KIS another tungsten miner and they have also risen today as did PMQ. If the price of tungsten is on the march then so will these sleepers


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## Hedders (12 October 2009)

Thanks for that Donga- sleepers is an understatement. HSK was getting caned in August but has recovered a little. Today it reached a new gear but as you say, a sharp rise in tungsten plus a delay in reponse to Friday could explain it


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## skc (12 October 2009)

It was all because of this...

http://www.smh.com.au/business/china-tightens-grip-on-tungsten-20091009-gqrf.html?skin=text-only

HSK also has a listed convertible notes under HSKG.

Face value $3
Coupon = 8% p.a. paid semi-annually
Conversion on Apr 2011 if not earlier
Conversion = 1.007 shares + $1.75 cash


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## Hedders (12 October 2009)

skc said:


> It was all because of this...
> 
> http://www.smh.com.au/business/china-tightens-grip-on-tungsten-20091009-gqrf.html?skin=text-only
> 
> ...




Thanks skc- the smh story explains a lot. Excuse my ignorance, but why would someone buy HSKG instead of HSK if the price difference is roughly $1.75 cash anyway? I don't know much about convertible notes. Are you guaranteed to receive 8% pa?


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## skc (13 October 2009)

Hedders said:


> Thanks skc- the smh story explains a lot. Excuse my ignorance, but why would someone buy HSKG instead of HSK if the price difference is roughly $1.75 cash anyway? I don't know much about convertible notes. Are you guaranteed to receive 8% pa?




8% is guaranteed. It's essentially an unsecured note (loan) to the company. There are pros and cons with the convertible note

1. Unless company goes bankrupt or have a serious re-cap plan, you will get your capital back ($3 in this case) at the end of the note's life.

2. Notes pay higher interest on the face value compared to share dividends.

3. If the company goes bankrupt, you are ranked ahead of equity holders... doesn't mean you get anything, however.

4. Note holders can enjoy some upside in the stock through conversion. Say at maturity the share is trading at $2, you can convert and get 1 share + $1.75 cash + you have pocketed some interest along the way. 

5. On the con side - the note is a lot less liquid, it's interest is fixed compared to dividend which is not capped, may not be eligible to special dividends, rights issues and other voting rights etc. There may also be redeemed by the company under certain conditions.

Speaking of the devil.. just gone into a trading halt!


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## skc (13 October 2009)

A capital raising? What the? Didn't they just completed a SPP? How much more money do they need?

Perhaps this is a raising with some interested buyer for a large stake in the company, but you would expect them to say things like "significant transaction" if that's the case.

Let's see how the note holders fare differently to the ordinary share holders in a capital raising.


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## Beez (13 October 2009)

skc said:


> 8% is guaranteed. It's essentially an unsecured note (loan) to the company. There are pros and cons with the convertible note
> 
> 1. Unless company goes bankrupt or have a serious re-cap plan, you will get your capital back ($3 in this case) at the end of the note's life.
> 
> ...




That's a good summary - esp. on the liquidity problems for the noteholders - we saw a fairly substantial conversion recently where people were willing to realise a big haircut just to liquidate their positions - so if you are considering them I think you've got to be willing to hold them to maturity. 

I'm a noteholder and preferred them to the ord. shares for more qualitative reasons. It's worthwhile trawling through the annual reports (and 2004 prospectus - though the size and mechanism changed in 2005 or 2006) to get the details of the "Founders Bonus Plan". IIRC the way it works is to pay out  20% of the annual profits over $250k to three members of senior management which is all very Macquarie bank. This continues until the company accumulates $65mill in profits then it steps down to 10%. The worry for me was that this rewards gross profit even if it is at the expense of per share returns - so if they spy an opportunity to increase profit via aquisition they are incentivised to raise big chunks of capital and quite possible dilute retail shareholders in the process because their preffered stake in the company can't be diluted. Offsetting that risk is that they all also have reasonable shareholdings in the company. On balance however, I couldn't trust a board that came up with this kind of plan so I'm invested in the conv. notes which you've been able to buy at well below face value giving a very attractive prospective return. 



skc said:


> A capital raising? What the? Didn't they just completed a SPP? How much more money do they need?
> 
> Perhaps this is a raising with some interested buyer for a large stake in the company, but you would expect them to say things like "significant transaction" if that's the case.
> 
> Let's see how the note holders fare differently to the ordinary share holders in a capital raising.




This was my worry. Actually it is possible that the notes may be the problem. They're a $60million company with around $30million face value of convertible notes that need to be converted or repaid in the next 18 months. Even if they are all converted that's still $17 million or so in cash they have to find between now and then and that isn't going to happen from the cash flowing from the business. So they need to either raise capital or debt.


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## Hedders (13 October 2009)

Thanks for the info about the notes skc and Beez- much appreciated. Sound like HSK will make an announcement by Thursday. HSK is my 3rd mining stock to go into a trading halt in a week!!


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## dandd (9 January 2010)

Any recent thoughts on this stock?  Trading well below capital raising price in Oct at 47c.  I bought in a bit higher than that after the capital raising was complete and share price has really been down since.  I still think long term is probably a good investment...


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## skc (9 June 2010)

skc said:


> It was all because of this...
> 
> http://www.smh.com.au/business/china-tightens-grip-on-tungsten-20091009-gqrf.html?skin=text-only
> 
> ...




HSK is trading only at 31c but the notes are doing OK at $2.36.

At $2.36 with 2x 12c coupons to come and a face value of $3, that's a pretty decent return if holding to maturity in 10 months. No wonder there aren't any sellers.

Risks are of course re-capitalisation like extension of the conversion date, or HSK going belly up.


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## Beez (27 December 2010)

Fair bit of movement over the last 6 months:
1. Failed takeover of NQM - actually I don't really see it as having failed; I think it was more of a spoiler bid to protect their own interests in Pajingo which has turned out to be somewhat irrelevant as they have:
2. Sold their interest in Pajingo to the eventual acquirers of NQM (Conquest) for Cash of $27 million and ~$10 million (closer to ~$15 million at today's prices) of CQT shares.
3. HSK have just announced that they are vending the majority of their Los Santos project into a listed JV with a private equity firm and expect to realise $20 million from that transaction.

Implications -

For Noteholders - the convertible notes are now basically backed by cash (unless they've done something stupid with the Pajingo cash in the meantime). Hence we've seen a rise in price to $2.90 against a face value of $3.00 (remember these are conv. notes in a small minerals co. with market cap around $30 million). I'm somewhat happy. The investment looks like it will have worked out well (over 30% p.a. return) - but as it happens the opportunity cost is probably higher given what I could have bought at the time instead so I'm not ecstatic.

For shareholders - I'm only a noteholder so the overall situation isn't that interesting to me and this is very rough. After the Los Santos transaction they should have (on the asset side) and without going into all the balance sheet details:
- Around $50 million in cash
- A 45% continuing interest in the Los Santos venture
- Their small minerals sands business in Canada
- Their minority interest in Conquest.
If we value the residual los santos interest using $20 million for the 55% they have sold and assuming that the PE co. are not vending anything themselves into the JV then that asset is worth ~$16million. Say the minerals sands business is worth $5 million to be conservative and their stake in CQT is fairly valued by mr market at $15 million then total assets will be $90 million (50+16+15+5) vs the notes (and interest) liabilities of ~$33 million. So net assets of around $60 million. Current market cap of ~$35 million seems cheapish but their record of creating value for shareholders is not spectacular and they are giving up control of cashflows from their two major assets. Might be worth another proper look if you think more highly of management than I do.


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## springhill (27 July 2012)

MC - 17m
SP - 11c
Shares - 150m (approx)
Options - ?
Cash - $14.9m
Investments - $7.2m
Unsecured Converting Notes - $2.74m is payable in cash no earlier than 31 December 2012 and no later than 30 March 2015

*Production*
● Canadian industrial minerals production 11,860 tonnes up strongly (61%) on the previous corresponding period (pcp). Normal seasonal variations resulted in 34% lower production than the March quarter
*Revenue*
● Revenue for Canada for the June quarter up strongly (130%) on the pcp at C$3.65m, although down 25% on the March quarter again reflecting normal seasonal trends
*Cost of Sales*
● Heemskirk Canada cost of sales for the June quarter C$3.48m
● Heemskirk Canada cash costs* for the June quarter C$3.07m, up 22% on the pcp due to higher production. Significant improvement in unit costs reflecting higher volumes and productivity improvements
*Development Projects – Moberly Frac Sand*
● Detailed plant design and engineering nearing completion
● Final capital cost estimate due next quarter
● MNPCF appointed to source funds for capital development
● Environmental and other permitting applications and amendments progressing without any major issues


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## springhill (31 July 2012)

*Heemskirk Consolidated provides the following update on the Moberly Frac Sand Project.*

-Detailed Process Plant Engineering work has been undertaken by the AECOM group
-Estimated total capital, including processing plant, associate infrastructure and permitting work is C$26m
-Capital supports a robust project producing 300,000 tonnes per annum of frac sand over a life of 20+ years
-Third Party group (MNP Corporate Finance) to manage Frac Sand Project financing (announced 26 July 2012)
-Subject to appropriate financing and commercial arrangements, the Board intends to approve proceeding with implementation of the Project


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## System (22 June 2017)

On June 21st, 2017, Heemskirk Consolidated Limited (HSK) was removed from the ASX's official list at the request of the Company, pursuant to Listing Rule 17.14, following the completion of the compulsory acquisition by Northern Silica Corporation of all the shares in the Company.


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