Apollo Global Capital completes stake acquisition in a company that owns a vessel that may or may not be mining yet

Our first off-shore mining company disclosed yesterday that it had completed the acquisition of a minority stake in Poet Blue Ocean Offshore Services Pte. Ltd (PBO), the company that owns the MB Siphon 1 vessel that Apollo Global Capital [APL 0.09] is using (or intends to use?) to mine for exportable magnetite. As noted in the disclosure, PBO is a special purpose vehicle that only owns one asset, the MB Siphon 1. APL paid P711,980,780 for its new 49% stake in PBO, using the proceeds from its recent FOO to make the cash payment. APL indicated that it purchased this stake to get a second stream of income from the charter fees earned by PBO.

APL said that, together with the “90.47% royalties” from its subsidiary, JDVC Resources (the actual company that does the mining), the two sources of income “are expected to be sufficient in satisfying the cash requirements of the group and no further fund-raising is expected in the coming year”. The PSE suspended APL’s stock under the Substantial Acquisition Rule, pending APL’s comprehensive disclosure on the transaction.

MB BOTTOM-LINE

Without the benefit of additional context, this feels like a problem without a cause. After APL’s statements saying that the MB Siphon 1 was ready for operations (there are even pics online from December 2020 showing the crew practicing safety drills on deck), it never once came up that purchasing a stake in the company that owned MB Siphon 1 was a pre-condition to starting those operations.

Investors and shareholders were teased with the imminent start of operations, subject (of course) to the weather, but the issue of the PBO stake never came up as something that would necessarily have to happen before the ship could begin doing its work. What is really going on here? I don’t know for certain, but the quoted line from the disclosure heavily implies that APL’s operations at the mining site would not be viable from just the royalties on the ore mined from the site, without the 49% kickback of the charter fees paid by JDVC for the vessel itself. Is that an accurate reflection of what is happening? I don’t know, but the management team hasn’t provided nearly enough guidance on this issue yet to help investors and its shareholders figure it out for themselves.

The stock is down 80% from its January high of P0.43/share, and is down 50% since June. The stock had a couple of little mini-pumps as it bounced off the P0.10 level, but the third time wasn’t the charm and the stock has drifted beneath the waves into single-digit centavo territory.

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