Hi Ash, On your point about M&A I like to add some of my thoughts!
Much like you I have held the view that SFR, although a fantastic target for S32, was a little richly priced. I have however reflected on recent developments and softened that view somewhat. I think S32 has grounds for offering a premium of 30% to 50% here. My view is based on these reasons.
Sandfire under $5B Enterprise Value is not expensive - not cheap either but perhaps 10-20% short of a full valuation with base case assumptions. Importantly it either discounts or outrightly ignores the upside being
a) Most banks have long term copper price estimate of ~$4.3 currently. Sandfire financial model likely will have something similar as that is consensus today. I strongly believe this number is heading north in 2 years time we will be looking at a long term consensus starting with a 5.
b) I have strong conviction that sandfire will deliver on the organic growth strategy they presented few months ago. i.e both Matsa and Motheo will have a proved up reserve life of 15 years by CY2025. This is not baked into the sandfire current valuation. They will be printing money for 15 years
c) KCB (Kalahari copper belt) is the #1 exploration spot right now outside DRC etc - Every major is looking for exploration deals in that area. We are 1 discovery away from hitting the pay dirt there. And I can feel in my stomach it will happen in medium term.
d) SFR will likely not construct the Black Butte project themselves, they will likely derisk it and sell. That project fits well in S32's hands as they have established operations in US and lot better synergies. It has a lot more value for S32 than it has for SFR. Add the Hermosa peake deposit, trilogy/bornite prospects in Alaska to it and S32 will have a meaningful US copper business that will be valued at a couple of billion USD easy. Talk about creating money out of thin air
e) Adding another 200-300 KTPA of copper production to S32's portfolio will make S32 lot more attractive to big investors
I say AUD7B - 7.5B for SFR will look cheap in 2 years time! Take them out now which we can.
S32 Price at posting:
$3.22 Sentiment: Buy Disclosure: Held
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