Good afternoon
Equities as well as metals look like closing the week slightly up today…some uncertainties regarding the trade deal are holding things back…Following some earlier weakness, nickel to close up again.
I fear i will write up all the same stocks again - but newsflow is heavy in those names!
SQM paints a very bleak picture of the lithium market for next year at least. I guess they might be talking their interest a bit- discouraging new supply . But in any case, there is no hurry to look at the sector any time soon. Always good to be countercyclical - but too be too early, can really hurt!
Panoramic - now we are playing! PAN have agreed to open their books to IGO…I am pretty sure, that this is the start of the real takeover. They will also open books to other interested parties - and I am sure there would be one or two! This also decreases the risk of IGO dropping the bid, making the stock interesting for arbitrage players. This is not changing the fact, that PAN need more money - in case of a rights issue, IGO could still drop the bid, or adjust. I think the risk of owning PAN has gone down substantially on this move - the IGO-bid values them at 0,467 A$ today ( 1:13 ). I hope we will see 60ct for it…which still undervalues them in the long term, I think, and in any case, presents a great strategic aquicition for any aquirer. Don´t forget, that PAN are valued as a one-mine stock ( = risky ), and within a larger group, this risk goes to zero…and I assume, that any aquirer will be able to save 5 Mill$ p.a. in headoffice costs! Not to talk about the market in tendency ascribing larger value to larger companies…So I think even paying full price ( which is higher than 60ct ! ) , PAN still makes a good aquisition for some players! In the case of IGO, having only 6 years mine life left despite heavy exploration spend, and widely regarded as being overvalued, there are added advantages of owning PAN, which has proven life of 8 years, and potentially much more on already establised exploration upside of several years more. IGO also have exploration rights to substantial land holdings surrounding Savannah. My favourite scenario: PAN will raise 28 mill$ in a 1:8 at 35ct - IGO keeping up the paper bid 1:13, and adding another 10ct in cash….I think on that basis, there is a reasonable chance of success for them, given the chequred history f PAN more recently. Anf if the companies advisors can get some competitive tension, there might be more in it…so stay long!
Genex - had their AGM today, and some excellent news: Japanese group J-Power still wants to invest 25 mill$ into the hydro project, or the company - anew MOU has been sigend, replacing the old one, which was to expire on the 31th of December. GNX now have commitments from three of the key players to get the hydro-pump project going again - NAIF for the 610 mill $ financing, the Queensland government to largely build the power line ( up to 127 mill$ , and J-Power for the equity ) the most important one, though, is the one which fell over a few weeks ago - this is the offtake agreement with Energy Australia, which did not get approval at the last minute from the Hongkong-based, ultimate owner of EA. But I think we have sufficient support now from different players, to be very hopeful again. Key players want this this tohappen, not least the Queensland government. The Kidston Pumped Hydro Project would bring more stability to the grid system, as well as more available power at peak demand times. GNX had an interesting chart of electricity prices in todays presentation, exhibiting that often dureing day time, electricity prices are actually negative - very good for Genex, which would pump up the water during times of low demand, and release it at peak demand. I ahve done some back-of-the-.envelope calculations to find out, how much of the potential proejct is actually in the price - the answer: basically none! The two solar projects - one has been operating for more than 12 month, the other one starting with generation this time next year - are very low risk, and should produce for about 30 years. They have been financed qith 175 mill A$ of debt, to be amortised over 20 years ( = 8,75 Mill $ p.a. ). The interest rate is believed to be around 3,5% ( = about 6 millA$ p.a. initially, and falling by 5% p.a. due to repayment ) . Expected revenue from the two projects is a minimum of 25 mill A$ p.a. ( 50% of which at a set, minimum price thanks to the Queensland government ), resulting in net cash from operations of about 23 mill A$ p.a.. These numbers results in GNX receiving net cash flow of approx 8-8.5 mill A$ p.a. . I would be surprised, if the company had to pay any tax for the next few years at least, given the large capex etc….Once say 50% of the project debt would have been repaid in 10 years time, annual cash flow from operations would rise to something like a minimum of 11 mill A$, and after 20 years, to 22 mill A$ ( assuming, that operating costs of the ( by then ) ageing solar farm would have doubled from todays costs! For a company with a 73 mill A$ market cap, this is fully valuing the company ( especially, as headoffice costs attributable to the two operations would be say 3 mill A$ p.a. ). But it certainly leaves precious little, if anything in the valuation for the pumped hydro project, which should be worth much more than the two solar proejcts ( yes, big capex, but these things run for 80-100 years!!! ). In otehr words - and in my subjective and biased opinion - this thing is a screaming buy!! 3-4ct downside, 30-40ct upside! That´s what a call a good risk-reward situation!
Strike Energy - some investors are concerned, that the Western Australian gas market might not be deep enough to swallow the gas, potentially produced by Strike / Warrego from their new discovery. While I am not sharing this view for all sort of reasons, it´s interesting to note, that Woodside, tha giant in Western Australia, today confirmed of being in talks with Beach/Mitsui, to pipe their gas ( from Waitsia, about 15km from West Erregulla ) to their large LNG processing facilities. This would be a game changer for the local market. Gas in Western Australia is very much cheaper than at the East Coast - 8-9$ in the East, 4-4.50 in W.A.! Connected to LNG facilities, the market would most probably adjust, at least reducing the price-gap somewhat. Anyway - I am pretty relaxed here - the company has made a fantastic discovery, and alongside Waitsia, will be the cheapest producer in Western Australia. Let´s face it - to worry about the market is a nice worry to have! Usually, these issues rectify themselves - but assumed, that we really have too much gas, it might take a little longer than planned to establish the market, or find it via LNG.
Saracen - overall, some pretty positive comments over the last few days with regards to their transforming aquisition of the stake in the Golden Mile. Analysts like the substantial addition of mine life, production/size - but as in most deals, there is also some risk - mainly in the fact, that the mine will produce at reduced rates for the next 3.5 years, due to the wall failure last year. I think the psoitive aspects are more important than the risks here - I like the transaction! SAR is a company with good depth, and they have time to look at potential operatorship of the mine until May next year. Increased diversity from adding a new mine, which they probably bought at a reasonable price, should reduce the risks. And a fact is, that the market pays for size and marketability. 200 mill A$ in debt are nothing to worry about - some leverage is good leverage, in my opinion. I think the only thought holding back investors is: Why did EVN and NST not buy it? But I think both companies have reasons, which can be explained.
Have a nice weekend!
WS
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