I think most long term ADT holders are not ADT holders just because of takeover prospects but because the company itself has good prospects. I think a very early analyst report (was it Sprott?) had called it a “globally rare will be a mine” or something of that sort. Whether or not, a takeover is on the cards, at least some speculation of takeover is always justifiable and has been happening since the early days of ADT. I also thought of doing some further analysis to see if at all a takeover was to take place, what would be the benefits for ADT/SFR.
Warning- very long comment – Go straight to point 14 for some conclusions if you’d like that, or points "6 to 9" for some pros and cons
I’ll try to explain some more below -
Point 1&2 – factors fuelling takeover talks
Point 3&4 – factors which might influence SFR share price
Point 5 – factors influencing ADT share price
Points 6 to 9 – pros and cons of takeover for SFR and ADT
Points 10 onwards - miscellaneous
1/ Nominee director responsibilities
John Edwards was SFR’s nominee director
Here is a good article explaining some potential conflict of interest which can arise
https://www.lavan.com.au/advice/corporate_services/the_role_of_and_issues_with_nominee_directors
As explained in the link, he represents SFR’s interest at ADT board level. However he has to also have the best interest of ADT.
Another article here explains further. Extract below -
“
A nominee director is a director who is appointed by a shareholder, creditor or interest group and who has a continuing loyalty to the nominator or some interest other than the interest of the company.
Nominee directors should act in the best interests of the company to which they are appointed and not in the interests of the nominator. Nominee directors should be aware of conflicts of interests they have towards the company and the loyalties they hold towards their nominators. In Australia, the nominee directors can, however, pay regard to the interests of the nominator if they genuinely believe they are acting in the best interests of the company.
If an actual conflict of interest occurs, the nominee must either obey their duty to the company, not to the nominator, or resign from the company’s board.”
https://aicd.companydirectors.com.a...-director-t-bc-types-of-directors_a4_web.ashx
Note that this does not mean that there was conflict of interest and takeover is going to happen but at least shareholder speculation does not seem completely unjustified.
2/ Other factors fuelling takeover prospects
a/ SFR
steadily increasing shareholding to what I think is now 16%
b/
Nothing mentioned about ADT in SFR May 27 presentation (refer later in comment). Why would a company not talk anything about a great investment,
unless maybe they wouldn’t want to highlight it too much before making a big bid
c/ If planning to sell, then
how is SFR going to sell some 30 million shares or whatever at a good price. Refer point 4 for more info
d/ Even if they sell close to $2 and get some 50-60 million,
cash is not SFR main issue but mine life is
3/ Analysis of SFR’s share price
Prior to analysis of takeover, it is necessary to get some understanding of SFR’s share price
https://hotcopper.com.au/threads/ann-sandfire-rrs-investor-forum-presentation.5415895/
Above is a recent (May 27) presentation
SFR has 178 million shares and @5.14 valuation is approx 915 million. Dividends from presentation seem to total to $1.07. Closer look at SFR price chart showed that it
reached close to 10 around 2011 and 2012.
https://www.asx.com.au/prices/chart...&volumeMovingAverage=&timeframe=Daily
With the exception of a rise from June 2017 to June 2018 to around $10 again, SFR share price has been mostly down.
Reasons for this IMO -
a/ 2011 and 2012 was the
initial phase of Degrussa. Refer
mining life cycle chart below
http://www.usfunds.com/media/images...-08/COMM-Life-Cycle-of-a-Mine-08082014-lg.gif
b/ 2011 and 2012 was also a time of massive
commodities boom
c/ Check out long term
copper price chart., which has been falling
Copper topped at around $4.5 around 2011-12
https://www.finviz.com/futures_charts.ashx?t=HG&p=m1
Then there was another top at around $3.3 in June 2018 and that top again coincided with SFR’s next top around June 2018 (ADT jumping from 20c to 60 might also have had some positive impact on SFR sentiment
)
Copper took a hammering this year and so did SFR share price with a multi year low of 2.75.
IMO, copper is at a risk of another hard tumble this year. I’ve mentioned some days back of some
macro fears. Apart from that if you look at the copper chart, there seems
potential strong resistance around $3 mark and copper is right now at $2.91
Clearly SFR is copper dominant and ideally seems to move with price of copper
4/ Paragon analysis of ADT which talks about SFR too
Top analysis from Paragon in Dec 2019
https://www.livewiremarkets.com/wires/adriatic-outstanding-scoping-study-economics-for-vares-project
Relevant extracts -
“
...free cashflows are strong at US$200-250m p.a. ($300- 365m p.a.) in the early years……
Sandfire’s recent acquisition of MOD Resources T3 project in Botswana helps offset some of Degrussa’s production decline, however with inferior metrics (T3 project capex of US$182m, 30ktpa of Copper producing free cashflow of US$50m pa (payback of ~4yrs) they will need to do a lot more – see Figure 3 below. Sandfire’s Black Butte project in the USA doesn’t cut it and will unlikely happen in the timeframe required.
Sandfire currently has $260m in net cash and at spot Copper prices, its Degrussa asset should generate another $500m+ of free cashflow over the next 3 years of its useful life. This implies a cumulative $750m+ of net cash.” - some extracts of some great analysis by John Deniz of Paragon
5/ Datt’s analysis which I linked some days back
https://www.datt.com.au/blog/adriatic-metals-acquire-tethyan-resources
https://www.datt.com.au/blog/adriatic-metals-the-next-steps
Relevant extracts -
“
Adriatic aim to complete a Pre-feasibility study ('PFS') on the Vares Project by September 2020 and a Definitive Feasibility Study ('DFS') by January 2021; having previously completed a Scoping Study on the project in late 2019. The Scoping Study had highlighted the world-class economics of the Vares project with the key metrics being:
Post Tax NPV8 of USD$916
Post Tax IRR of 107%
Capex payback period of 8 months
LOM Capex of US$178 million (inc. 30% contingency)
Since the completion of the Scoping Study, we note that Adriatic have made material progress on a number of fronts.
We estimate that an NPV8 of circa USD$1.2 billion (AUD$1.85 billion, 0.65 FX) using similar metal price assumptions as assumed in the Scoping Study, may be achieved in the PFS”.- some extracts of some great analysis by Datt Capital
Scoping study link below
https://hotcopper.com.au/threads/ann-adriatic-metals-scoping-study.5081617/
Investors should calculate our share price at a valuation of 1.85 billion and compare against current price with current shares of 179.8 million . It comes to share price of around $10.3.
Valuation of 1.85 billion – share price of $10.3
Keep in mind, there are other factors like commodities could rise etc which would again influence NPV. Also Tethyan assets, further drilling, etc.
So important to note how much we can still catch up to NPV and also keep in mind further assets of Tethyan. Also clear that $5 takeover valuation being talked about has sound basis
6/ Benefits of takeover for SFR
a/ Simich has some
Balkan heritage and might have familiarity with Bosnia-Serbia
b/
Simich has experience in getting a great asset to production
c/ ADT’s assets probably
better than T3 and Black Butte
d/ Less exposure to copper and
polymetallic
e/ Issue of
life beyond Degrussa solved
f/ SFR has 178 million shares and ADT
179.8 million – a great match
7/ Benefits of takeover for ADT
a/ Simich has some
Balkan heritage and might have familiarity with Bosnia-Serbia
b/
Simich has experience in getting a great asset to production
c/ SFR has
178 million shares and ADT 179.8 million – a great match
d/
With SFR cash pile, going into production seems a really great possibility. This would give a much fairer valuation to ADT’s assets in terms of share price
e/ Long term ADT holders can get
immediate fruits for their effort if takeover at good price
8/ Disadvantages of takeover for SFR
a/ Not sure what kind of an offer SFR would make without a
big dilution for them
b/ Heavy dilution for SFR could help stabilise long term share price but
cap upside for some time. IGO took a hit for quite a while after takeover of
SIR. No guarantee that takeover could lead to big price appreciation. But at least downside risk might be mitigated over long term.
9/ Disadvantages of takeover for ADT
a/
Not sure any offer from SFR might be good enough considering that SFR would consider something that doesn't dilute themselves too much
b/ An appropriate valuation for ADT would almost surely involve a
lot of SFR shares too. So would ADT holders actually be able to realise that value in medium term?
C/
Best returns IMO would almost surely be if
ADT goes alone and goes into production with minimal dilution. Refer Datt’s notes for some more info on royalty etc.
I’ve tried to cover point of both SFR and ADT above. Hopefully the end result is a win-win for both if at all, there is any takeover
I’ll try to cover a few other points now -
10/ Macro worries
As I mentioned some days back, broader macro worries are my main risk for ADT or any stock for that matter.
I’ve posted some more info here on what I think would be some potential targets for S&P500, including info about hedge against some long term investments
https://hotcopper.com.au/threads/bbus.4011346/page-7274?post_id=45706140
11/ Some reasons for fall on Friday
Friday’s fall could be explained on many grounds –
a/ Former (Jan)
resistance close to $2 mark;
b/ $2 being
round figure;
c/ profit taking on
big spike in share price;
d/ response to
speeding ticket;
e/ booking of profits on
Friday which often happens;
d/ swing traders exiting, etc.
12/ Elliot wave
I mentioned few days back when share price was around 1.57, that if we are in wave 3 then this is a great chance for deep pocketed ADT bulls to take ADT soaring.
This price action again has the hallmark of Wave 3, where people waiting on sidelines sometimes don't get a chance to enter.
Hopefully, bulls continue to power ahead without giving bears the chance to make it a sort of temporary double top around $2, which would mess up the Elliot wave stuff
13/ Broker reports
ADT site mentions broker analysis with much higher valuations than current share price but taking into account current stage of life cycle
https://www.adriaticmetals.com/investors/analyst-research/
14/ Final words and some conclusions
I’ve tried my best to do a fair analysis from both ADT and SFR point of view.
Important to keep in mind that plenty of speculation above, lot of which might not materialise at all. Nevertheless as shareholders, we aim to try to be ahead of the market and have to speculate as to multiple possibilities which may or may not eventuate. So please keep this in mind that much or all might not happen, and DYOR.
a/ I think if at all a takeover has to happen, it has to be in next 12 months.
There are
far too many positive catalysts for ADT and if indeed SFR want to take them over, then gap between our valuations could get lower with each passing day
b/ There are at least
justifiable reasons for takeover speculation (refer points 1 and 2)
c/ SFR’s share price is
copper dominant and they need to focus on life after Degrussa (refer points 3 and 4)
d/ ADT takeover @$5 being talked about has
sound basis based on NPV (refer point 5)
e/ Main negative of takeover for
SFR is dilution.
Main negative of takeover for ADT would be that it is
SFR might be too small to give ADT a fair price for their assets and ADT shareholders might get much more fair return in long term if
ADT makes it to production
Main positive for SFR is
life after Degrussa not an issue anymore.
Main positive for ADT at an attractive valuation is
immediate fruits for long term holders and
strong chance of making it to production with SFR cash pile for those who want to get into SFR.
Please DYOR as always
(20min delay)