Current Price: C$0.25
Offer Price: C$0.35
Upside: 34%
Expiration Date: TBD
This is a sort of takeover “in the making” for a Canadian-listed gold miner. The situation offers an asymmetric risk-reward, however, the liquidity is very limited.
In April, Starcore International Mines was approached by Mexican PE firm Semper Recursos Naturales (ref. Semper) with an offer at C$0.32/share in cash. The bid was rejected and Semper returned in the beginning of May with a C$0.35/share proposal only to be turned down again. Then Semper announced it intends to go straight to shareholders (hostile) and there has been silence since. Currently, there’s a 34% spread to C$0.35/share. SAM is off the radar for most investors due to its extremely small size (C$13m market cap) and liquidity, which partly explains the spread. Details on the buyer are limited, although, the proposal announcement stated that the deal wouldn’t be contingent on financing. The offer values SAM’s gold-producing San Martin mine at around 1-2x EBITDA and ascribes no value to the remaining exploration assets (which are also quite interesting). On a positive note, SAM’s CEO said management would be open to bids at more reasonable prices. If Semper raises the price, you get additional upside on the current spread. If Semper walks away, the downside to pre-announcement prices is only 10%-20%.
In this recent interview, SAM’s CEO explained that Semper’s proposal is totally lowball and, excluding C$9m of SAM’s working capital, values its operating mine, and other development assets at only C$8m. In short, the assets are:
- San Martin – gold-producing underground mine in Mexico. It’s a 13k hectares property, of which the company has so far explored only 11%. San Martin produces around 11-12koz gold annually, while SAM continuously explores the property and seeks further expansion. Including various exploration/development expenses, SAM has been generating significant EBITDA on post-COVID elevated gold prices. In FY20 (ending April) EBITDA was C$1.6m, FY21 – C$6.9m and in the recent 9M ending Jan,’22 SAM generated C$8m of EBITDA.
- Creston Moly – an asset consisting of 3 molybdenum/copper projects – El Creston, Ajax, and Opodepe (all also in Mexico). SAM acquired Creston Moly for C$2m back in 2015 from the previous owner’s bankruptcy. The previous owner bought the assets in 2011 for C$194m. El Creston is the most advanced project. According to a preliminary feasibility study conducted in 2010, El Creston’s estimated after-tax NPV-10 stands at US429m with molybdenum price at $15 (USD/kg) and copper at $2.6 (US/lbs) vs current prices of $43 USD/kg and $4.2 USD/lbs. Clearly, these were only preliminary estimates based on inferred resources (speculative), but it kind of gives a directional sense of the once assumed value of Creston Moly (not clear how relevant it still is).
The hostile offer would need approval from 2/3rds of the votes cast to squeeze out the remaining holders at a second step. Management owns 7%, Eric Sprott – 12%, and Italian precious metals refiner/trader Italpreziosi SPA owns 7%.
Issuing shares with warrants attached at 20 cents. So they won’t sell the company at 35 cents because it’s lowball but they’ll issue private placement shares at 20cents… Appears Eadie is intent on entrenching himself and ripping off shareholders. Curious who will get the private placement, some self dealing happening here?
https://sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00009020&issuerType=03&projectNo=03406621&docId=5238296
C$1.2m private placement ready to be closed one day after the placement announcement. As mentioned, there is a risk of self dealing here – both the CEO and CFO participated.
More details:
– 1/2 of a warrant + 1 SAM share for C$0.20.
– Warrant strike is C$0.30. Exercise period of 4 years.
– If shares trade above C$0.40 for 20 consecutive trading days, warrant exercise period can be reduced to 30 days.
https://money.tmx.com/en/quote/SAM/news/6838842150478951/Starcore_Ready_to_Close_Private_Placement
SAM reported FY2022 (ending April) results. Exploration of San Martin mine has progressed and production was 12% higher than in Q3. Working capital remained at $9m. At current prices, the company’s operating mine and other assets are valued at only $4m or 0.8x 2022 EBITDA. Share price was up 20% on the news, though liquidity was limited.
https://money.tmx.com/en/quote/SAM/news/4783671954198720/Starcore_Reports_Year_End_2022_Results
The company reported weak FY Q1 (end July) results. Shares are down 23%.
Revenue from ore mined increased by 10%. However, a spike in cost of sales and operational expenses significantly reduced profitability with EBITDA margins dropping from 30% to 9% YoY. FY Q1 EBITDA dropped to C$0.6m from C$1.9m last year. Details on the expense increase were limited, but it seems that a large part might’ve been driven by inflationary pressures (fees, salaries, IR expenses) and FX impact.
DIluted market cap is now C$7.6m, whereas working capital stood at C$10.8m, meaning the market ascribes negative value to the profitable operating mine and other assets.
Other than that, no news on further buyout interests so far.
https://starcore.com/en/investors/news/2022/starcore-reports-q1-results/
SAM released rather weak Q2 (ending in Oct) results. Driven by reduced production volumes and lower gold/silver prices, revenues fell 28% YoY. On the cost side, inflationary pressures continue to weigh down performance, with mine operating cash cost/AISC rising noticeably versus the same quarter last year. SAM recorded just C$0.1m in EBITDA – down from C$2.9m a year ago. Net cash stood at C$8.8m – in line with diluted market cap of C$8.7m. This implies that the company’s operating mine and other assets are valued at a negative C$0.1m.
Overall, still no news on further buyout interests so far and I think it no longer makes sense to keep this quick idea active. -40% in 6 months.