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End of 2022, net assets were circa USD$500m. At the current share price and current exchange rates, the market is valuing ECORA at USD$291m.
Kestrel depreciation hit is USD$43m.
Operating cost a year is USD$10m, dividend payments should cost perhaps USD$22m.
So on a very rough guess, perhaps the company should be worth :-
net assets of 500m,
-43m (Kestrel depreciation hit)
-20m (operating expenses for 2 years)
-44m (paying dividends fof 2 years)
=USD$415m! But the current market cap is USD$291m.
*not considering income this year & next, especially if cobalt or nickel rises again
**availability of USD$200m revolving credit facility, if needed.
What am I missing out, especially big ticket items?
The royalty partners have been digging in the wrong place. Not on ECOR assets. Looks like that may have accounted for some of the SP decline of late and yet directors were happy to buy much higher.
Given the outlook and deleveraging prospects I think if this drops today it could be a good buying opportunity.
Commo’s will have their day again. Ecor is pretty inflation agnostic as the diggers absorb any cost increases. Ecor just get their cut.
Could be a nice income tuckaway here with sector leasing divi. But there has been little capacity to grow the divi.
I remain on the sidelines for now.
Usual caveats
Trek
Dividend isn’t covered once Kestrel ends?
Yeah once Kestrel ends we will be burning cash but operating costs are rather low. Let's say we burn USD$40m a year for operations & dividend payout: based on net assets of USD$500m at YE 2022, minus current market valuation at USD$290m+USD$43m hit from Kestrel depreciation, that's a negative equity of about USD$167m. Market is pricing in about 4 years(167/40=4.175) operations with zero income...which we know is NOT the case.
These are rough calculations to try make sense out of ECOR current valuation because I was wondering why on Earth are directors buying shares throughout this year if fortunes are supposedly as bad as what the market seems to be pricing in.
Suspect the market is worried that the dividend will not be supported going forward. Last reported cash at June of $6m vs borrowings of $50m. So net asset value of $480m aside, how do you continue to pay the dividend when the “core” portfolio ex Kestrel paid $4.8m this quarter / $19m annualised, less central costs and debt servicing / repayments. Dividends of 2.125c per quarter = $22m pa for a current yield of 7%. If that has to be cut, it will be difficult for the income funds and others holding for the yield.
thanks for trying to enlighten me but it still didn't help answer why the directors have been buying shares all year. i took time to listen to the entire webcast again as of 30 june 2023.
https://stream.brrmedia.co.uk/broadcast/64e36d138e06f606d0f0cc7b/64f592ffc6e9d7476c27e94c
starting from net asset of usd$500m ye2022, the key takeaways for me are :-
1. near term(ye2023) expected net debt was announced as usd$100m, but as of end september in the q3 rns yesterday, it is still rather low at usd$68m. - good
2. the two primary drivers for income starting as early as q12024 is increased production at voiseys bay and kestrel mining at areas within scope of the royalty. it's already q42023 so not much longer to wait. - good
3. voiseys bay at final phase of switching from above to below ground which should ideally time it right for ramp up next year. the risk here could be adverse weather conditions with winter coming up it would have been nice if there was communication in yesterday's rns that this risk is mitigated - good with risks
3. seems like there is still around usd$100m+ headroom from the credit facility for all of next year. with my previous rough estimation, usd$40m per annum for operating expenses + dividend payments makes it about 2.5 years of runway - good
4. costs remain flat despite the inflation. - good
5. voiseys bay deliveries are currently below expectation but cobalt price isn't attractive enough to consume/extract supplies in the ground, which is sensible and smart. but the timing could have been better. - mixed good/bad
there are others but i'm tired of typing. i've been invested here for years and apf has always had prudent financial management so i am surprised at the share price. i reckon q42023 will be the lowest point of the share price before things start looking brighter from q12024 onwards. i also think an established uptrend would come within the next 3 to 4 months or sooner which is when i think i'll top up. i'd like to see chief financial officer kevin ***** buy more shares within this timeframe which should indicate that all is still well financially, or if cobalt prices gap up.
if you notice, the little calculations i have above negates cash in bank and any income for the next 2 years. this risk should already be baked in the sp.
my understanding of the director buys this year is now better understood and i shall remain invested because it's not too long to wait.