Good afternoon
Equities are digesting their recent gains today…the US are a little stronger so far by late afternoon.
Snowflake is set to rise on it´s debut today. IPO range has been increased from 75-85 US$ to 100-110$, and was fixed at 120 US$ - valuing them at 33 bill US$. The stock has not opened as yet - looks like it will do so at 230 US$ - for a company with 248 mill US$ revenue in the first half of 2020!! That´s what I call exhuberance!
Base metals are well supported, still profiting from positive mood in China, and are slightly up.
Gold is edging higher, currently at 1967 US$ or a boring 2680 A$/oz…it has barely changed since late August. Having said this, I think all Australian producers would be very happy for this price to stay, as it is!
Retail sales were a bit lower than expected in the US today.
In the absense of much news today, I had another look at good old
Sheffield Resources - which in my opinion, is a deep value play , as tehy are awaiting FIRB approval. This is the major obstacle to development of their zircon/ilmenite mine in Northern Western Australia - well, for the market it seems to be. I would be very very surprised, if they would not get approval for the JV with Yansteel, a 6 bn US$ revenue, steel producer in China. Australian relations with China have clearly deteriorated, ove rthe Australian call ( stupid ) for an intenational enquirie into the origins of the virus in Wuhan. Just imagine the Chines asking for such an enquirie, if it ahd happened in the US! Anyway - I think the risk for this project to not get FIRB approval from the Australian government, has to be very low.
Just to remined you: Yansteel are paying 130 mill A$ in equity for 50% of a JV, which is to operate and own the Thunderbird Mine.Additional to this, they have taken a 9,9% placement in Sheffield for approx 12,9 mill A$ at 0,375 A$/share, which repesented a massive premium, when the deal was done in early August - but also a 35% premium to tdays price of SFX at 0,28 A$. The transaction also valued the projext at 261 mill A$ for 100% - so 130.5 mill for each partner. Yansteelt also agreed to a longterm off-take agreement for the ilmenite produced by the JV. So as at today, SFX have about 17 mill A$ cash in the bank. SFX will incur some costs for early works on the project,a nd for finalising a revised feasibility study ( as a remineder, the old FS arrived at an NPV of just under 1 bill A$! )Cash + 130.5 mill A$ for 50% of the JV amount to approx 147 mill A$ vs today´s market cap of 97 mill A$! I really think, that the market is discounting the stock too heavily for the risk of FIRB approval. The valuation at deal terms with Yansteel is approx 42ct - the valuation at the old NPV, of which I do not expect a material change ( lower capex - lower operating costs - but lower revenue? ) is more like 1,20 A$! The big trigger for SFX will be FIRB, which I would expect within the next 3 month. It is important to remember, that the project will not be worthless, if tehy do not get it - but you have 400%+ upside from current levels over the next 2-3 years. I am holding a large position in SFX, and I think it should be smart to accumulate stock at current levels.
Have a good evening, and enjoy the ride + the last few days of summer!
WS
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