The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
Unkurtash has been sitting there with nothing being done to it for a while now, so it could be a target, but I personally doubt it as the economics there are probably worse than CGH's own assets. My guess is that they will be after Jerooy.
Daisan, I welcome people's views and happy to participate in a discussion. I have no issues with pablo2's posts for example, which are respectful and balanced. Your posts were simply aggressive and inflamatory, hence my reaction, but at no point did I "descend into abuse". So, please, look at self first before blaming others. If you can't get me to understand your point, then we will agree to disagree, and you can stop or continue reading my posts or commenting on them - I don't mind either way - but please don't accuse me of something I am not and don't take a high road simply because you don't agree with my point of view.
Pablo2, let me weigh in on the two mysterious international financial institutions. I am pretty sure these are BMO and Sberbank of Russia. On the former, this is simple process of deduction - after all BMO are advising them on the deal so it makes sense that they would lead an equity raise and probably underwrite it, hence the confidence in the announcement. On the latter - they were named in a Bloomberg article quoting someone "close to the deal". Well, it's the largest bank in Russia so they do have money to lend, but I am not too sure about their appetite for lending into Kyrgyzstan. P.S. shakhtar means "miner" - connection to the eponymous football club (which indeed has a mining connection) is an unintended coincidence
Ladies, I am really flattered by all the attention I am getting here, but seriously, a Centerra plant? Do you really think Centerra would risk a market manipulation criminal charge by doing something that stupid?! And I know quite a bit more about CGH than you might think. dear Daisan. I even had a pleasure (quite some time ago, admittedly) of speaking to Martin and a few other people within the company, in person. I might even invest one day, but not just yet...
Daisan, did I understand correctly you said that in my calculations I ingnored the value of cgh assets? So what else does the market cap I used reflects if not the value of cgh assets? And why are you getting so defensive? I’m actually in agreement with all you good people in that this is a great deal for cgh. And I applaud whoever put it together for their creativity. The point I was making is simple and in the subject of this post. If I were advising the government (or Kyrgyzaltyn) I would cerrainly tell them that they are being shortchanged by some very smart people. As a cgh shareholder you shouldn’t care, but I am simply making people informed by posting my view. I’m not trying to shove it down anyone’s throat - ignore it if you wish. Oh, and how cgh funds this is certainly relevant to the government, especially if debt will be secured by kumtor assets. And you are right, no one is forcing the government. And that’s precisely my point - they should NOT participate in this deal. But guess what - without them there will be no deal. They provide equity to an otherwise bare offer. They enable cgh to have a hope of raising debt for this. And in return they are getting rubbish deal.
Daisan, 79% was calculated as 450 / (450+120), where 450 was the value Kyrgyzaltyn stake in Centerra and 120 being Chaarat market cap. Even if only 400, i.e. part of shares is used in the transaction, then Kyrgyzaltyn stake in CGH post-acquisition should be 400 / (400+120) = 77% (assuming remainder financed through debt). For Kyrgyzaltyn stake (again, in CGH direct, not just Kumtor) to be 50%, CGH should be providing $280m (400-120) in own cash - and that is the amount of equity raise (more than 2:1 potential dilution to current shareholders) that you are looking at if this was structured fairly for Kyrgyzaltyn. Any debt raised is likely to be secured on 100% of Kumtor assets and shares, not just 50%. Hence CGH structuring this as a 100% acquisition with 50% "economic interest" for Kyrgyzaltyn via prefs. What does that mean? Kyrgyzaltyn will be entitiled to a 50% of the ordinary dividend? Is that all? For this to be fair to Kyrgyzaltyn, the prefs should carry a mezzanine type return - not sure what this would be for Kyrgyzstan but 10-12% guaranteed annual dividend would be a good start. I take your point that an asset is worth what somebody is willing to pay, and you say the risk of someone else bidding is low... well, maybe, but then again, tell me what's stopping me, or you, getting a few good friends together, setting up a company and making a better offer to both Centerra and Kyrgyzaltyn? I would easilty offer Centerra $1bn (comprising all Kyrgyzaltyn shares and $500 of my non-existent cash). I will then give Kyrgyzaltyn 77% in my company (which still has no cash!) and then go to the banks looking for $500m of debt secured on 100% of a producing mine worth $1.2bn and generating $ 150m - 200m of annual cashflow. Oh, and whilst at it, I won't be forgetting to promise to spend $600m in Kyrgyzstan for the next 5-7 years, using same cashflows from Kumtor. And even after all that I'd be more than happy with my 23% stake which I got for free as a result!! That's called leveraged buy-out. And that's precisely what CGH are trying to achieve, but they are trying to get a 50% free carry in Kumtor. As I said, if they succeed, the rest of CGH shareholders would participate in this windfall, so I congratulate you if you are holding shares. I'm not (and neither am I shorting), but I stand by my analysis - this deal, on the face of it, is rubbish for Kyrgyzstan. It is maybe OK'ish for Centerra, unless someone makes a better offer I just outlined above. If fact, I might just go out there and speak to a few friends in banks and then give a call to Scott Perry and guys Kyrgyzaltyn ;)
Daisan, 79% was calculated as 450 / (450+120), where 450 was the value Kyrgyzaltyn stake in Centerra and 120 being Chaarat market cap. Even if only 400, i.e. part of shares is used in the transaction, then Kyrgyzaltyn stake in CGH post-acquisition should be 400 / (400+120) = 77% (assuming remainder financed through debt). For Kyrgyzaltyn stake (again, in CGH direct, not just Kumtor) to be 50%, CGH should be providing $280m (400-120) in own cash - and that is the amount of equity raise (more than 2:1 potential dilution to current shareholders) that you are looking at if this was structured fairly for Kyrgyzaltyn. Any debt raised is likely to be secured on 100% of Kumtor assets and shares, not just 50%. Hence CGH structuring this as a 100% acquisition with 50% "economic interest" for Kyrgyzaltyn via prefs. What does that mean? Kyrgyzaltyn will be entitiled to a 50% of the ordinary dividend? Is that all? For this to be fair to Kyrgyzaltyn, the prefs should carry a mezzanine type return - not sure what this would be for Kyrgyzstan but 10-12% guaranteed annual dividend would be a good start. I take your point that an asset is worth what somebody is willing to pay, and you say the risk of someone else bidding is low... well, maybe, but then again, tell me what's stopping me, or you, getting a few good friends together, setting up a company and making a better offer to both Centerra and Kyrgyzaltyn? I would easilty offer Centerra $1bn (comprising all Kyrgyzaltyn shares and $500 of my non-existent cash). I will then give Kyrgyzaltyn 77% in my company (which still has no cash!) and then go to the banks looking for $500m of debt secured on 100% of a producing mine worth $1.2bn and generating $ 150m - 200m of annual cashflow. Oh, and whilst at it, I won't be forgetting to promise to spend $600m in Kyrgyzstan for the next 5-7 years, using same cashflows from Kumtor. And even after all that I'd be more than happy with my 23% stake which I got for free as a result!! That's called leveraged buy-out. And that's precisely what CGH are trying to achieve, but they are trying to get a 50% free carry in Kumtor. As I said, if they succeed, the rest of CGH shareholders would participate in this windfall, so I congratulate you if you are holding shares. I'm not (and neither am I shorting), but I stand by my analysis - this deal, on the face of it, is rubbish for Kyrgyzstan. It is maybe OK'ish for Centerra, unless someone makes a better offer I just outlined above. If fact, I might just go out there and speak to a few friends in banks and then give a call to Scott Perry and guys Kyrgyzaltyn ;)
Agree, 1140 seems about right. I did my own 'back of the envelope' calc. Assuming Cu $7100/t average for the year and 285kt production I see 2018 EBITDA at c. $1.4bn (post-MET) and EPS at approx. $1.56. I see net debt at end of year roughly flat at $2.1bn. Assuming EV/EBITDA at 6.5x and PE at 10x, I calculate SP range at 1100-1130p (at current �/$ fx). At the times when copper price rallies I would expect it to go towards �12 or maybe higher with a bit of a tailwind (and hope of getting into ftse100). Looks good to be buying on dips below 900p imho )
what's with this [linked romoved] staff? I'm new to this so not sure if this is being moderated or what. Anyway, the valuation range that was supposed to be there for what I think kumtor should sell is US $ 1.3bn - 1.5bn
Not sure what the need was for today's announcement, other than to put more pressure on Centerra. No real news there, but certainly warrants a comment or two. Clearly they wanted to disclose the offer and justify their valuation (in public), but that nonsence about 30% premium is just that - nonsense. I looked at the presentation they refer to and it says Kumtor consensus NAV is US$916m, or 31% of the group NAV (not 33% as CGH said, btw). The fact that Centerra trades at 0.6x NAV doesn't mean that the discount is equally distributed among its assets. So, the logic they present in the announcement is just false and I was cringing of embarrassement on their behalf when reading it. So I thought I would look into Kumtor a bit. Centerral is guiding 2018 producion of 450-500koz at all-in sustaining cost (inc. tax) of $900-1000/oz. At $1300/oz that should yield $135-200m of "profit after tax" (a proxy for it, anyway). The offer of $800m is therefore at 4x-6x PAT. Do you really think this is fair value? That would be an 'sort of acceptable' multiple for EV/EBITDA. I estimate 2018 EBITDA at $300-350m (educated guess), and it looks like there is no debt on Kumtor, so $800m offer is pitched at 2.3x-2.7x EV/EBITDA. That's just too low! Looks to me that even the consensus NAV of $916m is too low, but of course one needs to do a proper fundamental analysis to be sure. Still, it feels to me that the valuation that Centerra should find acceptable should be well north of US$1bn, I'd say US$1.3-1.5bn... All this means is that, if they do succeed in getting Centerra to sell at $800m, or even $900m, that would be a GREAT deal! a great deal for all CGH shareholders, and made even greater by the second "looser" in this offer - Kyrgyzaltyn and Kyrgyzstan as their owner. All that talk about $600m investment in Kyrgyzstan is just a good PR, but the deal Kyrgyzstan is getting is rubbish. Kyrgyzaltyn provides $450m of equity in the form of 26.6% in Centerra fotr the deal to happen, which should actually allow CGH to raise the full remainin $350-450m in debt without any equity issue. Given CGH market cap of $120m, Kyrgyzaltyn should be asking for 79% in CGH itself and not a measly 50% preferred economic interest in Kumtor! Interesting how they talk about welcoming a "fair and transparent debate" and cooperating with "any audit or inquiry into the deal". I suppose they know well that the deal logic for Kyrgyzalty will be questioned... And this is why I think this deal will fail. It is just too good to be true. For CGH shareholders tha is. It will only succeed if corrupt Kyrgyz officials who support this deal are in on it... or plain stupid.
The reason was quite simply to put pressure on Centerra. This looks like a government supported hostile "squeeze out". If this goes through, watch for shareholder changes post transaction. I won't be surprised to see a few new material holders magically appearing out of the blue. Interesting to see Volynets being so vocal on this - too vocal for a non-exec if you ask me )
Absolutely agree with Daisan. Who are they trying to fool with a 5% discount rate? I work in the industry and have recently done an analysis of what WACC should be for an operating (!) gold miner in Kyrgyzstan. Average across CIS was 8.7% real (that would be roughly 10.9% nominal). And that's for gold producers, not projects. For a project like this, in the high risk jurisdiction that it is, the discount rate should be 10-11% real at least! With an IRR at 8.2% (if Daisan is correct), this would make it uneconomic and would not be approved for development by any respectable board. It is extremely irresponsible for Martin to be making the comments that he did in the announcement. Either he knows something that the rest of us don't, and this something must clearly be material enough to give him this confidence (and then the question is, should he not be announcing this to the market?), or he is a cowboy operator who is desperately trying to ramp up this stock as he bought so heavily into it and is trying to save his poor investment?