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Sirius Minerals Share Chat (SXX)



Share Price: 19.80Bid: 19.69Ask: 19.80Change: 0.00 (0.00%)No Movement on Sirius Minerals
Spread: 0.11Spread as %: 0.56%Open: 19.44High: 19.89Low: 19.41Yesterday’s Close: 19.80


Share Discussion for Sirius Minerals




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2
chilting
Posts: 3,746
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
Yes if the dilution is via an investment from a strategic partner we probably will see a rise in the SP.

But is Sirius go back to shareholders the new shares will be offered at a very substantial discount to the current SP.

That is the gamble here at the moment.
 
verdeceleste
Posts: 231
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
After the September RNS I ran my own calculations (and nothings changed since!) and also using 10% discount rate, late finish and 7 billion shares arrived at SP= 48p. Back at stage 1 the 20p placing was based on the logic that a fair price was 25p but a discount was needed to tempt institutions - so post stage 2 the SP becomes 39p
Of course the usual summer exuberance will probably get us to 55p
Personally I have been in SXX for over 3 years and won't be selling at 22p. 39p or 55p

Verde
Fred16
Posts: 1,285
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
I’m so glad there are people on this board who take the time and effort to write in threads like this especially in answer to posters like casapinos who also spends a lot of time writing posts while he waits to get back in?
Milothe3rd
Posts: 383
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
Hi GK,
Thank you for the cost view - it does complement the picture (although I usually stay away from using it as my benchmark pricing, ....as you know, cost ... does not reflect value, hence many mining projects end up challenged or written down in value, as future high production cost and product sales value give less profit, and future value are based on future cash flows). Lucky for us, our future production costs are low (due to higher investment upfront) and sales are at a good pricing (which would also get better once Poly4 established and ToP come up for renewals 5 yrs down the line).
I am getting the same 50p-ish / share, from a different angle:
Project NPV is roughly GBP 10 bil today (and again, we are using 10% DCF, which is huge and badly wrong for evaluations ... just read what Buffet said about this 10% and the biggest error he made in the past decade). But, let's stay with GBP10b.
Let's say we end up in a worse case Scenario with 7 or 10 bil shares (say 10).
So Project NPV / share = 100p.today.
Discount this to reflect 2-3 years or construction delay risk only (no funding risk as this is fixed by ST2), is roughly 40%.
Therefore the share price after ST2, based on 10 bil shares to be in issue after conversions etc, is 60 pence. Allow error in estimate, fear factor, etc, say 20% more discount, we end up with .... 48p.

If we end up with less than 10 bil shares = wow, that is the icing on the cake. Personally I see a 7-8 mil shares outcome, but, let's see shortly what it will be and end all this speculation.

Also consider that the II stayed away because of the risk on funding and their perceived risk of having to cough up more in future. If they feel now that the ST2 is sorting this out, then Investment managers will try to add to their portfolio few shares, on the CHEAP, now.... so yes, there are few (what some on this board will call idiots) II that are starting to build their SXX holdings (after ST2, if done as above, they will pay x2 for the share), hence you see 2mil share purchases here and there...
But, hey, what do the Investment managers know, or me etc ... compared to the 'Superlight' personalities on this board.
IMO
DYOR
GLA
M
Roobans
Posts: 839
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
Recommended wwguk!!
wwguk
Posts: 144
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
19 Jan '19
Casa, thanks for your detailed responses. The point I want to make is that the share price of a company after “dilution” (i.e., placement/open offer) could be higher, e.g., in case there are additional money (such as debt) added to the numerator (in addition to the current market cap and the money raised in the placement) to be divided by the total number of shares (including the newly increased shares). Your “standard City way of calculating the ‘mechanical‘ effect of a share dilution” can only be applied to normal placement/open offer without such debt raising at the same time. As the debt is the largest part in the stage 2 package (i.e., 3 out of 3.6), how can this be excluded from the calculation. Therefore, such standard city way is not applicable to estimate the share price impact of the SM stage 2 fundraising.

I agree with you that the Enterprise Value of SM will not increase to 5 billion immediately after the stage 2 is closed (as not all the 3 billion would be transferred to SM immediately). I did not use Enterprise Value or Market Cap in my calculation, as they both are dynamic and can be affected by sentiment and many other external factors. I used basic cost analysis, as it is a method suitable for early stage companies.

The 48p is the cost per share to build a mine and ramp it up to 10 mtpa. It is not an estimate of the share price after stage 2. I did not provide any hint on how fast the share price may reach this value (but we all know that if the mine is to be profitable, the value of the mine is going to exceed the cost to build it). Nevertheless, I believe that this cost per share value can be used as a cost reference value for us to see if we can get a good price when we purchase the shares from the market. Common knowledge tell us that to buy something good at factory price is a good bargain, and if we can buy it at a half of the factory price, it is a great bargain. Given the stage 2 uncertainties have been greatly reduced recently (this indicates that ST2 will be achieved and the mine will be built), the current share price seems to be a great bargain as it is less than a half of the cost per share to build the mine. Such opportunities are rare, and may only be available for a short time.
jesse11
Posts: 593
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
you would think by now he'd leave us to our ill-considered thoughts and go and haunt somebody else, he's like a bloody albatross attempting to drag us down with his well considered thoughts, he,s clever enough to be in someone,s pay........all adds to the churn ATB Jesse
Mr.dt
Posts: 710
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
and it makes a pleasant and positive change from some of the less well- considered and wildly optimistic chatter which fills this board.

I'd rather read alan g's ( im in over my head so need to remain wildy optimistic ) posts over your stagnant Outlook on this share casapinos if I'm honest......
causal
Posts: 1,534
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
Casapinos have a bottle of Newcastle brown, And then when you are convinced,invested in the spring if it's make you Feel better
Cranleigh
Posts: 1,605
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
“If for example, a takeover bid were mooted because a putative buyer would be expected to buy the equity in SXX (ie the market cap) AND accept the debt burden”

More comedy, now Casa implies a takeover could be successful at the current SP. You couldn’t make it up.
causal
Posts: 1,534
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
Casapinos-why convince other's about it ,When you can't convince your self,
tuckupp
Posts: 1,452
Opinion:Strong Buy
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
casapinos, I take it your not invested here, am I right?
casapinos
Posts: 831
Opinion:No Opinion
Price:22.38
RE: Dilution and price per share UP!
18 Jan '19
Hi WWG just assembled my thoughts in response to your midnight post.
While it is true that the EV of SXX might become £5 billion as a result of the funding there are several reasons why that does not directly affect the SP. First is that the ST2 funding will be a COMMITMENT to lend from the banks (some part of which will be subject to IPA Guarantee), NOT a deposit in the SXX bank account.It will be drawn down as and when needed to fund the mine engineering activities, so SXX Enterprise value does not immediately rocket to $4-5 bill.
Second is that while Enterprise Value would essentially be the value if , for example, a takeover bid were mooted because a putative buyer would be expected to buy the equity in SXX (ie the market cap) AND accept the debt burden.SO yes a prospective buyer would need to fork out for the value of all the shares and the debt ie ~$4-5 bill.That , though does NOT imply that the company's market cap equals $4-5 bill.Money committed or lent does not immediately enhance the market cap and thus the SP, you wouldn't for example count your mortgage as an asset(though of course the house you bought with it is)
My calculation is based on the standard City way of calculating the "mechanical " effect of a share dilution through either a placing to "new " investors or an open offer to existing investors.What it cannot do is to measure the " sentiment " effect of such a fund raising. That depends to some degree on the reason for the cash call , if its a "distressed" call either because a company has short or long -term cash problems raising new cash is seen , usually as negative, in this case as it is planned and to pursue a hoped for profitable mine it should(eventually) have a positive effect on the SP.
My post back in dec was a simple way (or so I thought ) of illustrating why I felt the SP had fallen sharply in recent months, and why it would remain depressed until the full details of ST2 were public.
My estimated SP of 16.4 p was, and is , based on a simple mathematical , knowable and standard calculation of a possible outcome - I am glad you included my "IF " before it and would also stress that i said "leaving aside sentiment effects" which might be positive and thus ameliorate any SP fall.
I hope that my summary above illustrates why your arithmetic calculation is based on a misconception,and that it is far less likely that the SP will head straight for your figure of 48p than my estimate of 16.4.
It is quite conceivable that a very positive outcome to ST2 will drive the SP upwards but that would be by way of "relief" rather than the arithmetic outcome you describe.
Finally , let me encourage you again , IIRC this is the second thoughtful and analytical post of yours I have addressed and it makes a pleasant and positive change from some of the less well- considered and wildly optimistic chatter which fills this board.
If anything I have written is unclear or if you disagree fire away , I will respond (event
casapinos
Posts: 831
Opinion:No Opinion
Price:22.32
RE: Dilution and price per share UP!
18 Jan '19
Hi WWG have read your post , busy today but will respond later this am or late afternoon.
wwguk
Posts: 144
Opinion:No Opinion
Price:22.12
Dilution and price per share UP!
18 Jan '19
It is true that in most cases, due to dilution the share price of a company will be lower when a replacement is made. Casa said (20 Dec 18) that “IF it were by a placing that's £400mill/1bill ie 28% of the current market cap. At an SP of 21p that level of dilution equals a post-placing SP of 21x(100/128) ie 16.4 pence”. I believe that your calculation was made under the assumption that the total value of the company keeps the same, hence to end with a low price per share.

However, due to the fact that the coming replacement/open offer is to be made together with a large debt element (3 billion), which will increase the enterprise value of company. Assuming $3 billion new shares will be added in a stage 2 deal, the total money raised by SM will be $5 billion (0.2b pre stage 1 + 1.2b stage 1 + 3.6b stage 2) and the total number of shares will be roughly 8 billion (current roughly 5 billion + the 3 billion). Before stage 2, the cost per share is 1.4/5 = 28 cent (or 21.6p per share), which is largely the current per share price. After stage 2, the per share cost will be 5/8 = 0.625 cent (48p = 0.625/1.2986).
I believe the reason for the current low SP is due to “the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern” (Dan McCrum September 27 2018). I believe that the main uncertainties are the 3 billion debt, rather than the additional 400-600 million budget. Given now that the banks have tentatively indicated at least 1.5 billion senior debt and the government guarantee has become very promising (given the recent comment by PM at the PMQ), I believe that such uncertainties have been greatly reduced. The odds of a successful stage 2 becomes higher. Therefore, we may now make a better informed bet on SM.

Casapinos, could you please comment on the above contrasting your lower per share price calculation; if possible I also wish to learn whether you believe that SM is more risky at the time you first brought the share or at this moment given “The good news is that it is now likely that whatever happens, ST2 will be achieved” (hence the mine will be built).
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