The following is a valuation of SYR based primarily on the acquisition of the White Dam project (and the assumptions that go with that).
My base case scenario is attached here and I feel it is essentially conservative. What it does really is highlight the fact that the company is quite undervalued at present.
Revenues and costs are reflective of SYR’s 80% share in the project rather than the project as a whole (just worked out easier that way and the results still going to be the same).
Company Structure Discount Rate: 12% Shares Outstanding: 30,000,005 Shares under escrow (24 mths): 9,000,000 Director Options (escrow 24 mths): 2,000,000 Fully diluted securities: 32,000,005 Share of Project: 80% Cash in Bank ($ m) - from issue: 4
Deal Structure Cost of Project ($ m): $12
SYR Payment SYR will pay $9.6 m towards the project. This will be made up of $3 m in equity and $6.6 m in deferred payments. I'm assuming a discount the equity issue will be at the share price of $0.15 (this is currently reflective of the sp as at 18th January 2008). In my view this is conservative as the deal may be structured so that the payment will be reflective of the average trading price over a later time period (once the acquisition has been confirmed).
Initial Capital Costs Initial capital costs to finalise project for production have been assumed to be $10.5 m. This is the cost estimate used by Exco Resources. The funding of this cost is unknown, but I am assuming 50% debt and 50% equity, which will lead to further dilution of the stock. I have also made a harsh assumption that they will repay any debt in full within a 3 year period plus interest of 8% p.a. (production commencing).
I'm assuming any further equity raising will be carried out at $0.20 allowing for a rise in the sp from current levels once the acquisition is finalised.
Issue Price of Shares: $0.20 Shares Issued (Capital Raising): 21,000,000 Total Shares Outstanding after funding: 71,000,005
Plus Cash outstanding per share: $0.06 Plus EV of initial projects per share: $0.04 (Issue price less cash raised diluted)
Total Value post Transaction: $0.48 Current Price: $0.15 Gross Returns (%): 221.0% Returns Multiple: 3.2
Now, as stated before this is using 80% of the current gold spot price, so if you’re a gold bug the share value will increase significantly using 100%, or if you assume an increasing price (100% ceteris parabis gives an sp valuation of $0.66).
Additionally, using an 80% recovery rate in addition to 100% of the gold spot price would give an sp of $0.79.
Now, presently we are discounting the inferred reserves at the Vertigo deposit – if we added them to the mix we would be over $1 (best case scenario would yield $1.39), but if we did so with the original assumptions in place we would still get $0.66. This all still ignores the exploration potential of the surrounding land.
The worst case scenario is really the original assumptions, but also assuming that the initial capital costs are raised through a discounted share placement (assuming $0.15 which also assumes the sp will be slightly higher once the acquisition is announced). This scenario still gives an sp valuation of about $0.35.
Now the difficulty with these micro investments is primarily that starved of oxygen (attention) the stock may not capture the value up front (although once it is finalised I imagine they will be doing the rounds amongst the brokers). The full value may not be captured until they begin production and in any case there are still some risks involved.
So, assuming a worst case (heavy dilution, 70% recovery, 80% Au price, no Vertigo production, no terminal value) and de-risking by 70% the sp valuation is roughly $0.24 (still much higher than today sellers).
All of this assumes practically no EV for their other projects and doesn’t allow for any upside exploration at White Dam (remember this is a 2km fault – barely scratched the surface).
SYR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)