Author Topic: SRHI.to - Sprott Resource Holdings  (Read 9035 times)

valuedontlie

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Re: SRHI.to - Sprott Resource Holdings
« Reply #20 on: February 13, 2019, 09:52:21 AM »
this has been my big question for the name... they still need to fund the project to reap the big 2020 cash flow figures... they don't have the cash on hand to do so... and you can't value the business using the net cash / securities today when they have some cash burn + capex need for the projects...


sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #21 on: February 14, 2019, 08:15:43 AM »
A great example that SRHI can take guidance from is Clarke Inc which has created significant shareholder value over several years in a series on substantial issuer bids and special dividends that have moved the share price from a substantial discount to book value to a premium to book in the last quarter...

During 2018, the Company's book value per share increased by $1.50 or 14.0%.  The increase can be ascribed to (i) positive $1.31 per Clarke common share ("Common Share") resulting from the recognition of additional surplus in one of our pension plans, (ii) positive $0.23 per Common share due to repurchasing Common Shares at prices below our book value per share, offset by (iii) negative $0.04 per Common Share of investment performance. Our book value per Common Share at the end of the year was $12.21 while our Common Share price was $12.50.

Halifax-based Clarke invests in a variety of private and publicly-traded businesses and participates actively where necessary to enhance the performance of such businesses and increase its return. Clarke's securities trade on the Toronto Stock Exchange (CKI); for more information about Clarke Inc., please visit our website at www.clarkeinc.com.


netnet

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Re: SRHI.to - Sprott Resource Holdings
« Reply #22 on: February 14, 2019, 12:24:45 PM »
Stupid question here: Why is this trading at these levels?

Not so stupid question: What would turn this into a disaster? (Did they really guarantee the MTV debt?)

sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #23 on: February 14, 2019, 12:37:40 PM »
Stupid question here: Why is this trading at these levels?

Not so stupid question: What would turn this into a disaster? (Did they really guarantee the MTV debt?)

1. The entire Cdn resource & small cap market has been undergoing selling pressure for years now. A small cap conglomerate in this sector is especially punished as there are few new buyers of such equity or many legacy sellers who have became impatient or are selling for reasons not related to fundamentals (tax reasons, need cash, portfolio manager change etc)

2 Yes they guaranteed a $15mm line which is still below the cash they currently hold....

 In July 2018, the Company agreed to guarantee (replacing the previous majority shareholder) the line
of credit provided to MTV from an investment fund in the amount of $15 million on the same terms as the prior guarantor. There are no other restrictions or externally imposed capital requirements of the Company.

netnet

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Re: SRHI.to - Sprott Resource Holdings
« Reply #24 on: February 15, 2019, 04:45:43 PM »
Quote
1. The entire Cdn resource & small cap market has been undergoing selling pressure for years now. A small cap conglomerate in this sector is especially punished as there are few new buyers of such equity or many legacy sellers who have became impatient or are selling for reasons not related to fundamentals (tax reasons, need cash, portfolio manager change etc)
Weakness ok, but Cdn small cap resource has not gone down by > 50% in the last 12 months, as Sprott has.

To answer my own question, if the Chilean mine were to blow up literally or figuratively (severe decline in copper) that would considerably change the upside.  (There is still downside protection though with net cash of C$33 million on a $C46 market cap, plus add in 20 mm of portfolio investments.)

Hey Cardboard is this the best you can do...just kidding.  In your universe is this the most attractive company?

sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #25 on: February 19, 2019, 12:17:11 PM »
Quote
1. The entire Cdn resource & small cap market has been undergoing selling pressure for years now. A small cap conglomerate in this sector is especially punished as there are few new buyers of such equity or many legacy sellers who have became impatient or are selling for reasons not related to fundamentals (tax reasons, need cash, portfolio manager change etc)
Weakness ok, but Cdn small cap resource has not gone down by > 50% in the last 12 months, as Sprott has.

To answer my own question, if the Chilean mine were to blow up literally or figuratively (severe decline in copper) that would considerably change the upside.  (There is still downside protection though with net cash of C$33 million on a $C46 market cap, plus add in 20 mm of portfolio investments.)

Hey Cardboard is this the best you can do...just kidding.  In your universe is this the most attractive company?

SRHI as an attractive net net negative enterprise value stock...

*Net net - Yes
*Margin of Safety - Yes - cash & publicly traded securities >mkt price
*Significant Upside - current $1.35 to potential $5+ based on current assets & pricing alone
*Catalyst - Yes - Strategic review, Copper price rising, Significant free cash flow <1yr


https://blogs.cfainstitute.org/investor/2013/07/10/returns-on-negative-enterprise-value-stocks-money-for-nothing/

Value investing is about finding and buying a bargain, a dollar selling for 70 cents or less. One of the most tantalizing apparent bargains offered by the stock market is the negative enterprise value (EV) stock: a stock that is trading for less than the net cash on the company’s balance sheet. Buying a negative EV stock seems like a no-lose proposition: Imagine a house selling for $1 million with a safe in the basement that contains $1.2 million in cash. Why would anyone offer up such a deal? If you find one, should you take it, or write it off as too good to be true?

To answer this question, I investigated the performance of all negative EV stocks trading in the United States between 30 March 1972 and 28 September 2012.

The average return across all 26,569 opportunities was 50.4%. That is, if you had diligently watched the market over the last 40 years and invested $1,000 into each negative EV stock each month, your average investment would be worth $1,504 after holding that investment for one year, not including trading costs, taxes, and so on. Not bad!


sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #26 on: February 19, 2019, 12:32:06 PM »
Will 2019 Be the Year of King Copper?

https://www.forbes.com/sites/greatspeculations/2019/02/19/will-2019-be-the-year-of-king-copper/amp/

Last week Morgan Stanley joined Citi and Goldman Sachs in making a bullish call on the metal. The investment bank projected a 14 percent upside for copper in 2019, based on a widening supply deficit and the likelihood of a resolution to the U.S.-China trade spat.

Singapore-based DBS Bank also sees a copper shortage over the mid-term. Analysts expect supply to be in a deficit each year between now and at least 2022, when it could be at its widest since 2004.

ingalsbe.parekh

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Re: SRHI.to - Sprott Resource Holdings
« Reply #27 on: March 04, 2019, 09:51:36 PM »
Sculpin, please let me know if I am missing anything here, but it seems like even before MTV can begin operations, the company needs significant capital; both for paying off financial obligations and for beginning their expansions on their deposits.

These figures are as of September 30, 2018 and might have changed, but among the mine's current liabilities is around $13.5 million outstanding in debt from a credit facility that is guaranteed by SRHI. Additionally, there is $18 million of accounts payable and accrued liabilities to be paid off within a year.

Moving on to the capital expenditures, the mine demands anywhere from $8 million (base case) to $13 million (PEA case) in capital expenditures in the coming year. We have a cash outflow of at least $40 million to $45 million. I am assuming SRHI/MTV are looking for at least $50 million in long term financing. I am not experienced in investing in junior mines, but are you comfortable with MTV taking this amount of debt?

Also do you have any background info on the management team? Have any members of the board had a controlling stake in such an extensive project. The uncertainty of the financing and the lack of a track record from management just look like risks to me.

mjm

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sculpin

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Re: SRHI.to - Sprott Resource Holdings
« Reply #29 on: April 16, 2019, 08:38:30 AM »
GMP reinitiates on SRHI – NAV of $5.85 under mining option.

Sprott Resource Holdings Inc.
BUY
SRHI-TSX

Last: C$1.37

April 10, 2019 ▲ Target: C$2.95

Updating NAV; maintaining BUY rating

As stated at the outset of our note, we believe SRHI’s strategic review could result in two likely outcomes. The first would be a complete liquidation of the portfolio, with the proceeds being returned to shareholders. Under this scenario, which incorporates the Base Case scenario for MTV, we estimate the SRHI NAV to be $4.30/sh.

Note that this value is inclusive of the 2% management fee, as it would take time to liquidate the portfolio, as well as the 1% termination fee that would be payable to SCLP given the terms outlined in the Master Services Agreement (MSA). Under this scenario, our SRHI implied target price of $3.25/sh is derived by applying 25% discount to our NAV. We continue to believe that a discount to NAV for target purposes is appropriate given the price discounting that may be required to liquidate some of the public and private holdings.

It is also possible that the strategic review could result in SRHI transforming itself into a mine operator. Under this scenario, we would expect that all the investment assets would be liquidated with the proceeds being used by SRHI to expand production at MTV. In addition to examining a Base Case scenario, the MTV Technical Study also evaluated the potential to expand production beyond the Base Case. Specifically, additional ore zones are brought into production such that annual average copper production increases to 34mm lbs versus 24mm lbs in the Base Case, the mine life increases to 7.5 years from 6.5 years previously and LOM capital is increased to US$52mm from US$32mm. Using a LOM cash operating cost of US$1.65/lb, we derive a value for SRHI’s 70% interest of US$124.6mm, which net of management and termination fees equates to a SRHI NAV of $5.85/sh.