What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Hartleys
Website: www.hartleys.com.au
PAPILLON RESOURCES LIMITED (ASX: PIR)
Takeover arrives
Papillon Resources Limited has received a friendly scrip merger offer from B2Gold (BTO.tsx).
The offer is 0.661 B2Gold shares for each PIR share held. The merger represents a purchase price of $1.71/share (based on B2Gold closing price 3/06/14) and values PIR at approx. $617 million.
Before PIR went into trading halt on 26 May 2014 the proposal represented a purchase price of around $2.00/share but since this date the B2Gold share price has fallen due to a combination of gold price volatility and media speculation surrounding the transaction.
Our current valuation for PIR is $1.89/share which suggests the original proposal was around fair value, especially given our PIR valuation is not adjusted by a country risk discount.
Fair value although cash would have been better
We see the original proposal by B2Gold as appropriate although the recent share price movement has pushed the implied deal price below our PIR valuation.
We maintain our view that Fekola is one of the best undeveloped gold assets in the world and hence may attract a counter offer by a larger gold miner, particularly as we see the potential for more value in PIR through a larger development (lower cutoff, larger mill for increased production).
Not scared to develop projects in difficult jurisdictions
BTO has a portfolio of assets in the Philippines, Nicaragua, Colombia, Namibia and Uruguay.
The company has a history of developing gold projects in some of the world’s more difficult jurisdictions.
BTO is currently operating two mines in Nicaragua and one in the Philippines. The company plans a fourth mine (Okjikoto) in Namibia to be commissioned in Q4 CY14.
BTO has a cash and equivalent assets position of approx. C$150 million and unused debt capacity of C$150 million.
Second deal PIR Chairman has done with the B2Gold club
We note that this deal comes soon after the completion of the Sierra Mining Ltd (SRM) merger with RTG Mining Inc (RTG).
The PIR chairman was also the chairman of SRM, and B2Gold was a major shareholder of both SRM & RTG.
We maintain our view that Fekola is one of the world’s best undeveloped gold projects.
The offer price doesn’t include a scarcity premium or significant exploration potential, but perhaps this allows for a small country risk discount.
Due to the scarcity of deposits like Fekola and the potential value accretion we believe it is possible that there is a counter bid, although given the very long sale process it seems probable that other potential avenues have been exhausted.
Breakaway Research
Website: www.breakawayresearch.com
TNG Limited (ASX: TNG)
TNG has made significant key advancements on the Mount Peake project, with the signing of MoU’s with WOOJIN and POSCO E&C since March 2014.
These agreements cover critical aspects of project development, including offtake, financing and construction.
In the shorter term the POSCO E&C MoU covers potential funding and completion of the Definitive Feasibility Study, a critical near term step in advancing Mount Peake.
One key now will be to progress these non-binding MoU’s into binding agreements, which will add significant impetus to Mount Peake.
The key technical consideration is to prove the commercialisation of the TIVAN® hydrometallurgical process, with pilot scale work now under way.
TNG continues to work towards development of its Mount Peake V-Ti-Fe project, and commercialisation of the TIVAN® hydrometallurgical process.
It is expected that the DFS will be completed by late 2014 – timing will be dependent upon results of the pilot scale TIVAN® testwork and obtaining funding.
With the signing of the recent MoU’s TNG has moved closer to sourcing funding for the DFS and development of Mount Peake.
Recent progress increases our confidence that TNG’s development strategy for Mount Peake is on track to be executed.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.
The views, opinions or recommendations of this article do not in any way reflect the views, opinions, recommendations, of The Resources Roadhouse.
The Roadhouse makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions.