SRHI.to - Sprott Resource Holdings

[sculpin]

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]

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]

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]

https://finance.yahoo.com/news/40-years-chile-copper-giant-230000625.html

[sculpin]

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.

[Pondside47]

There has been no update from the Special Committee for nearly 4 months.The value here is clear unless they pawn off the listed securities to fund MTV and MTV turns out to be a dud. The market clearly has no confidence on the management include Rick Rule. I wonder if we can find people with enough shares to push for change here. Maybe this is our own version of Sanborn Map that needs a little bit push. Don't get your hopes up but if you have a big enough stake that you care about the outcome, please message me on the forum.

[sculpin]

While short-term trade talk headlines continue to dominate and provide

headwinds for the copper price, we continue to believe the long-term copper

market fundamentals remain supportive of copper price appreciation due to a

widening copper deficit.

 

Forward to 2020, the International Copper Study Group

(ICSG) estimates a deficit of about 250k t Cu, as growth in refined production is

expected to lag usage. Market tightness is beginning to manifest in copper

treatment and refining charges, which are falling as rising refining capacity in 2019

is met with flat concentrate supplies.

 

Ahead, there continues to be a growing demand for copper from renewable

energy and electric vehicles (both of which

require more copper than conventional sources), with few new significant

sources of production to come on line. The production delay and cost overrun at

Rio Tinto’s Oyu Tolgi highlight the lack of mega projects developed during the

last cycle, and the significant time required to get production to market.