Firering Strategic Minerals: From explorer to producer. Watch the video here.
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Perhaps this is wishful thinking on my part - but below I will outline what I'm hoping will play out over the coming weeks.
SOLG agrees to sell its 85% share of ENSA to a 'NewCo' entirely owned by BHP and NCM (aware that these two technically own some of that 85%, but hear me out). NewCo also purchases Cornerstone's share of ENSA. SOLG receives cash for the disposal of its core asset, resulting in a substantial re-rerate in share price. I will not speculate on what that deal might look like, though I imagine it will disappoint the £1+ crew (sorry).
This:
1) explains why Cornerstone have been so quiet and seemingly content (we know when they are not content, they kick up a fuss)
2) allows for Darryl's 'next cab off the rank' prophecy to remain true - Alpala is sold off, SOLG retains Porvenir and the rest of its exploration portfolio, with the opportunity to rinse and repeat. You would hope that shareholders would receive a special dividend of sorts from the sale of Alpala, with cash retained in the coffers for what SOLG is best at - exploration
3) may allow Nick Mather, up for a reelection at the end of this year that he is almost certain to lose, to maintain his seat at the table as a NED (you would imagine this might be part of any negotiated deal for ENSA, as Nick's shares are going to be necessary to sway any vote)
4) allows for Nick's 'multiple exit points' for shareholders to remain true and is aligned with Darryl's new 'next cab off the rank language'
Nick's goose is cooked at the end of the year, and whilst that does not mean that he and his companies necessarily lose out on their shareholding, it does mean that his influence over decision making at SOLG is going to be heavily watered down. It also - in my opinion - increases the possibility of massive dilution on a scale that he personally would not be able to keep up with, thus weakening his influence further (and handing over the keys to the majors).
It might be a tough pill to swallow, but agreeing a deal for ENSA that allows him, his companies and us to all benefit in the short term, and allows him to retain some form of influence over the rest of SOLG's portfolio (remember, he thinks we're sitting on multiple Tier 1s) seems to be his best option at the moment.
Thoughts and feedback welcome - writing with a slightly sore head after yesterday's fun.
SM
SM, unsurprisingly, I agree, although I'm feeling a bit more optimistic on the valuation, particularly after the recent Tandy news.
Hi Sharket
So many possibilities/ connotations here. I’m fairly certain that Nick not under threat at the EGM but December ( if we get there ) could be a very different story. Norges ( usually risk averse) been building a stake here … as you say a quiet Irwin = a happy Irwin
I think the sale of Ensa makes sense on many fronts and it’s all playing out over the next few months
96p plus 59p dividend I'll settle for that
Thats a really well thought through contribution SM...
Just one observation...why would DGRs guys be exercising their options at above the market price if its not in anticipation of a bid for SOLG...
Your proposal monetises Cascabel for SOLG and CGP but does nothing for shareholders except increase the SP...
Unless the DGR guys are planning to sell in the market after an uplift triggered by DGR's SOLG stake...
Well done...
Have to be honest I have also reduced my expectations on the future SP.
I would be more than happy with an exit at 60p as we currently have no clear way of valuing SOLG. The Assets we hold are huge, as is the risk to execute and realise this value.
Adding into this the world clearly has a shortage and need for copper vs the risk impact of a short/medium term global slowdown/recession.
I genuinely struggle to see how this can be above 60p for the big payday. I guess the hope is a bidding war, however we have seen no news/on snippets of this materialising.
How much warning was there re Noront
Saw this on twitter from Michael Kao, who I would recommend following. Could have been written for Solg
"3 questions I ask myself for any idiosyncratic investment right now:
1. WHY is it undervalued and WHY am I so lucky to have uncovered it?
2. HOW is the company financing itself and what happens if it can't raise $?
3. WHAT is the catalyst for value realization?"
I may have this wrong but …,,
According to the May presentation Black Rock held 4.88%
According to this
https://m.marketscreener.com/quote/stock/SOLGOLD-PLC-4005870/company/
They are now down to 4% …… ?
As a dgr holder I am a little encouraged by this option buying. But as for why...might be great solg news incoming, or might not be that at all. They do have a big stake in ALL.L, which have announced they're assesing takeover bids. Could be that. Could be just that dgr is objectively very cheap, even at 30% above market.
That's a really good post. If the exploration portfolio is as amazing as they say, (and five years of eff all drilling might suggest otherwise, but) then that is by far the major prize long-term, and I very much do not want it to be the steak knives in a Cascabel deal. Sell Cascabel, spin out the exploreco and have dgr fund them.
You mean the 5 years of drilling that has discovered and defined Porvenir, Porvenireal?
The issue with SM's suggestion that I find is that cash rich companies are often undervalued. Major A buying our 85% in Cascabel for £1bn for example doesn't necessarily mean SOLG goes to a £1bn+ valuation.
For those expecting a dividend you have to account for the company holding back significant funds to continue exploration at the high priority licence areas, of which there's at least a dozen. Many dividend payers will have a policy of between, and say 30-50% of profits. I'd expect SOLG to be right at the lower end of this given the capital intensity required for the rest of the portfolio.
Just things to bear in mind when wishing the company sells it's flagship asset.
Bozi, you make a very valid point, but it doesn't take into account the demands of CGP and institutional shareholders for a significant return from the realization of our main asset. I simply can't see them accepting something which fails to achieve that ambition.
Addicknt- correct me if I'm wrong but what is stopping CGP exiting from their ENSA stake tomorrow if they wanted to?
There's nothing to my mind. There's a PFS on the table and really there's no reason why they can't turn their 15% over to anyone who makes an acceptable offer?
This whole idea that CGP are reliant on SolGold is a folly in my view. They are their own company and they have to look after their own shareholders, but the reality probably is that CGP want top dollar and maybe they only get that when SOLG relinquishes it's share.
SolGold are within their rights to tell them where to go. They can either raise their portion of the Capex or they can put their share up for sale.
As for other institutional shareholders, I don't think they're so reliant on quick profits. BHP take positions as early investors for example. These positions I suspect can just tick over. The slow game being paid by BHP indicates this too.
I thought CGP had to give Solgold first right of refusal if they wanted to sell their share of ENSA?
WensleyMan - that's correct. Maybe they should do it.
If SOLG don't want to pay what they're asking then their first refusal is counted and the whole of market can then approach them with bids.
Unless there's something in the agreement that says that CGP can't stipulate the terms of sale and they won't accept whatever SOLG offers. That can be the only cause of any stalemate.
Bozi,I don't define BHP/,NCM as institutional holders...they're trade investors.
Of course, subject to the right of first refusal, CGP can sell to whomever they wish, but I do wonder about the details of the detente agreed last year and whether what we may be seeing is us delivering our side of the agreement. However,I'm not sure it's going to be us buying them out, and the reason I think this is that I don't believe it would require shareholder approval.
It also shows Bell Potter Securities with 12.5% and doesn't mention Norges Bank DBW...
Explanation anyone...?
Bozi, they got 800 employees and one drill rig active that we know of.
rcgl2, would love to hear your own thoughts to the 3 questions you relay on here. The one around financing is the one that really sticks with me - hard to feel we're not now at a juncture whereby financing for further exploration and mine development around Cascabel simply has to be hived off from the rest of the portfolio. Which is again why I feel that a sale of ENSA is the route we ought to take (I think a spin off poses more problems than it solves).
Bozi, your point on cash rich companies being undervalued is a fair one, but I would hope the asset sale would at least result in a rerate that would allow some LTHs to exit or at least cash in on some of their holding. That is certainly what I will be doing, even if we were only around 60-80p.
Finally, and perhaps this is slightly too tin-foil-hatted, but, our new CFO starts on June 27, 3 days before the EGM. If a deal has been hashed out over the last however many weeks, the last thing you want is a decision maker coming in to the fold late in the day who might have their own opinions about how things should be structured (you would either end up in a situation where she was CFO but not calling the shots, undermining her authority long term, or a CFO forced to make decisions from a position of relative inexpeirence on a deal that she wasn't privy to from the outset). Joining 3 days before the AGM she can quite reasonably watch things unfold without expecting to be on the hook for anything. Perhaps a few steps too far with this one...
Cracking day of racing up at Huntingdon today, my first time at the course. Plenty of hardship before the tide turned and Aiden Coleman landed a tidy gamble on the lucky last. A good omen for Monday I feel!
Porvinereal - there's a reason for that though isn't there? It hasn't always been the case. In fact, it was never the case prior to January 2022.
Hi Sharketmare. My concern is mainly about valuation. Right now Solg is pretty much valued on Cascabel with very little attributed to anything else. So if they were to sell their stake in ENSA, doesn't that raise the question why should we expect it to be worth more than what Solg itself is currently worth?
If 85% of ENSA is worth more than ~£700m, then why isn't Solg worth more than that now, given that virtually no one seems to believe Solg will actually mine it themselves, i.e. a sale is likely. If 85% of ENSA is only worth £700m and that cash was received by Solg how will that help me as a shareholder today? I'll still be holding Solg shares that are worth around 32p which is mostly attributable to the cash they would be sitting on. If they keep some back to fund exploration and dividend some out, I would assume the value of the shares would decrease by the amount of the dividend. So where does that leave us? We've disposed of the most advanced asset, a proven tier 1 target and looks like economic mine, and are left with a load of assets that may or may not become economic mines and will consume a lot of cash to get to a state where value might be released. And some cash on the side. Admittedly the remainder of Solg would then be cashed up and require much less new equity funding which should mean avoiding dilution for holders as those other assets are proved up.
But I guess that brings me back to the question, is Solg undervalued right now and if so, why? And what if it's not undervalued, in which case would selling off the jewel in the crown actually be sensible at this point rather than trying to increase that value by securing funding or JV to build it and retain an interest, locking in future revenue streams?
There's no free lunch here. I feel like we need to avoid assuming that Solg can just sell its main asset and expect to receive more for it than it is currently valued at. If so, why would that be the case.
Not being negative here, I'm just trying to wrap my head around the possibilities and make sure I've thought through all the outcomes properly.
Good points Rcgl. So undervalued or not, selling the Cascabel would leave us almost with a shell, unless they have enough drill results to show that the shell is full of jewels, which is unlikely at this stage. As such, it would be a strategic mistake to get into such a transaction and run the risk of becoming a shell company (for some good time). From a portfolio approach, package everything. Of course, there is a risk-reward tradeoff and a less risky approach would not deliver the highest value.
rcgl2, there are a whole host a reasons a company (and by extension its assets) might not be accurately valued by the market at any given time. I will give the example of another share I am invested in, ALL, formerly IronRidge Resources. For months this share was undervalued because the investment case wasn't clear. They had a strong lithium asset that showed huge economic promise in Ghana with the potential to be in production by 2024. They also had gold prospects in the Ivory Coast and Chad that would clearly require greater capex and more drilling. They spun off the lithium assets and the new company almost doubled in MCAP within two months, because the market knew what it was buying in to.
I don't think that ENSA and its potential is currently valued properly by the market. I think that the PFS we produced was fairly conservative and has done the job of demonstrating to the market that 1) Alpala is economically viable and 2) the management team are capable of delivering what they promised.
For BHP and NCM, the investment case for Cascabel will be very clear, and they will be aware of its yet untapped potential. This is why I think they will be paying far more than the £700m you suggest.
Notice of EGM out