merging or jv, page-9

No wonder why it takes time to negotiate JVs and mergers, with all of these factors needing to be addressed.

Looking back over the proposals, one such proposal was for all of SPM's and CSD's assets to be combined into a joint venture, which is probably more like a merger.

So what is the value of CSD's assets?
Its net present value for Gillian and the Pinnacles is $110 million but then we have all sorts of other leases, some drilled and containing measured tin, such as Windermere and other leases containing alluvial deposits and some are even green fields.

Yet, from the 2012-06-08 Notice of Annual general meeting, when an Independent Expert was asked to value CSD, they were influenced by the market price. At the time, CSD was around $10-12 million dollars. The conclusion of the Independent Expert was that SPI could buy 50% of the project for around $3 million dollars given that they had already paid $3 million for the oppies.

But if you look at the future earning potential, doesn't CSD's project value it a lot higher. For example, it has an annual average operating cash flow (after capital costs, before tax) of A$29.7M, or around A$20.8 million after tax, assuming a clear 30% tax rate.

So,using a very conservative PE of 7, then that puts the Gillian and Pinnacles project worth about $145.5 million.

But then, that is using SPM's mill and concentrator.

And what is the value of all of SPM's assets?
What price do you place on Einasliegh, Maitland, BG, Surveyor and several more leases and the 1Mtpa million and concentrator plant. It was sold to them for $40 million, but that included a $10 million environmental bond, so $30 million?

Or perhaps we should look at their earning potential?

Currently, I get a figure of US$27.6 million per year, which is not far from SPM's projected earnings from their website. (They have US$14.87 million before tax for half year.) So, that makes it $19.32 million after tax.

Once again, using a PE of 7, it values SPM at $135 million. (I'm not bothering to worry about the exchange rate here.)


This means that SPI currently owns 90% of $135 million and 29% (given the oppies conversion) of $145 million, for a total of $163.55 million, or 58.4% of the combined project.

CSD owns 10% of $135 million and 71% of $145 million, for a total of $116.45 million, or 41.6% of the combined project.

Now, if SPI wants a 50% share of CSD, then they could cough up 21% of $145 million, or $30.45 million, which is funnily enough the cost of the mill. If this was indeed the case, at current prices, SPI would end up having 69% of the overall project and CSD 31%.

Oh, my head is spinning.


In summary, after looking at all the facts and figures, I'm thinking that perhaps I will just leave it to the independent experts and consultants to determine what is "fair and reasonable". After all, it is their job.

Meanwhile on low volume (so far), CSD's share price is drifting downwards.

18 days until the end of November and 43 days to Christmas.

PS - And talk about trying to pump. Even me, Mr CSD-Bullish, do not think it will reach that price. Keep to the facts people, or at least within reason.