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Jeremy Raper Profile picture
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8 Nov, 5 tweets, 1 min read
People seem to want my opinion on the Stanmore $SMR.AX BHP coal deal so I will give it.

I hate this transaction for a junior name like SMR.

1) SMR gets no benefit from crazy high current prices (ownership passes at closing). Diff than GLEN.LN deal for Cerrajon, etc....
...so low multiple on current earnings power (2x run-rate EV/EBITDA) is illusory. Multiple is more like 4x+ avg EBITDA. Not cheap (for coal) and certainly a lot richer than $SMR.AX equity...

2) they are levering this w/ $625mm of debt against the asset. Maybe 2x normal EBITDA...
...which given the Indo topco owners, prob won't be cheap. 8% cost of debt? pretty decent chunk of normalized EBITDA less capex (say <$300mm)

3) FIRB review: this may be significant given Indo owners. If $SMR.AX can't close, seems like theres a break fee (undisclosed) but...
...at say customary 2% of transaction would be ~$25mm USD. This is a big chunk of $SMR.AX mkt cap today so represents real risk.

4) Why is no one bigger buying these assets? I get the synergy argument but it feels like $SMR.AX paid up to get scale. Not sure why...
In other words this smacks of Indo magnate empire building and a good deal for BHP (if they can close it).

No way Elliot would have paid 4-5x normalized EBITDA, let alone agreed to not get paid for W/C in the interim.

No position in $SMR.AX. Stock reaction today seems - wrong.

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More from @puppyeh1

Jeremy Raper Profile picture
28 Oct
Why is this current coal opportunity different than the tanker opportunity (in my view)?

Many names are nowhere near as levered going in and will be clean cap structures by yr end (no matter what happens to spot pxes in the meantime).

Let's look at $RE4.SI one more time...
$RE4.SI last traed 33.5c SGD, putting it on a $470mm SGD mkt cap, or $345mm in USD (their reporting ccy).

They disclosed $62mm net cash as of early-Oct (when they repaid all their bonds).

So all-in EV today is ~$283mm (disregarding Oct-Dec FCF).
Now lets keep in mind a few things. In 1H this yr, when ICI4 (their benchmark) was in the high-$40s, they did $78mm of EBITDA (on lower volumes) and ~$50mm of net income.

Current ICI4 is still well north of $100/t today (who knows how long)...
Read 8 tweets
Jeremy Raper Profile picture
20 Oct
$690.DE $6690.HK UPDATE - I am giving up on the spread trade (last ~49% discount on the D-share).

Obvi this is a v disappointing outcome as the discount never closed to the levels I thought appropriate (20%).

I will try to unpack a little my thought process...maybe useful 🙇‍♂️
When I wrote it up I expected two things to happen over the course of the year:

1) some less liquidity-sensitive portion of the natural HK/Asian shareholder base to gravitate towards the German line, and exchange liquidity for cheapness; and

2) some progress to be made from..
...the company towards closing the discount (via accretive buybacks/purchase by the parent Haier topco/maybe even the allowal of fungibility).

Looking back on it, I suppose it was perhaps presumptive to conclude the company/Haier topco would care about the discount...
Read 5 tweets
Jeremy Raper Profile picture
5 Oct
Noodling on this a bit more. $RE4.SI Geo Energy

One way to think about what the 'reasonable' valn is for any name w/ idiosyncratic risk like this (Indo tycoon taking away your assets, etc), is benchmark the asset against itself. Ie what have ppl been willing to pay in the past?
Then think, is the same company better or worse (credit, cap allocation, cap returns, governance, etc) versus the average past?

$RE4.SI traded at ~3.8x LTM EV/EBITDA in early 2021 on the basis of FY20 numbers. Last yr they still put up $57mm of EBITDA but no real net earnings...
...and they still carried a bit of gross USD debt ($60mm) - a decent risk for a small-cap Indo co.

Simply using TIKR data, it looks like this shitco has generally traded 2.5-4x EV/EBITDA, on a LTM trailing basis. Avg looks like ~3-3.5x EV/EBITDA:
Read 10 tweets
Jeremy Raper Profile picture
5 Oct
Thought exercise - what is the right price for an Indonesian coal shitco in the current environment?

Geo Energy ($RE4.SI) trades in 🇸🇬, at 32c has a $330mm USD mkt cap. Per recent PR, has $60mm cash, no debt. So EV is $270mm.

Its currently making $40-50mm EBITDA per MONTH...
...assuming $80/t-$100/t benchmark coal pxes (benchmark is ICI4, the crappy Indo thermal coal grade).

For perspective - in 1H they did $78mm in EBITDA w/ pxes in the mid-40s/t.

Current ICI4 px is $117/t. That is batshit stupid...

But at pxes 65% lower this is on 1.6x EV/EBITDA
And printing 15%+ of its market cap, in cash, EVERY MONTH.

As I said, there is no debt. I have no clue what coal prices do.

Absent HORRID capital allocation what is this worth??
Read 5 tweets
Jeremy Raper Profile picture
28 Sep
Ok Kingsgate $KCN.AX, let's do this. Aussie gold miner special sit. This is not without risk so big boy pants on, DYODD, I am long and think its compelling but again - caveat emptor bigly on this one.

That said - the stock is $1.25, i think imminently its $2+ and heading to $3-4
Mkt cap today is ~$275mm (AUD), $10mm cash, no debt.

Two main assets: the Chatree gold/silver mine in Thailand; and a development asset in Chile (Nueva Esperanza).

NE agreed sale to a Canadian junior for $69mm. Hasn't closed - let's forget it for now.
Chatree in Thailand. V complex story. Mine shut down in 2015 bec the Thai govt basically removed $KCN.AX licence overnight due to environmental concerns. These were never proven (in fact the opposite). Chatree had been mining since 2001, $KCN had invested >$1bn over time.
Read 27 tweets
Jeremy Raper Profile picture
26 Sep
I have been thinking more and more about the $CAMB.LN outcome in the context of my own investment, but more in terms of what I want my Fintwit contribution to be.

Connor is a friend and a great advocate for minorities in situations like this, but there is more to be done.

👇👇
If I think about what 'went wrong' w/ how Cambria turned out, clearly we had a conflicted and complicit board; an avaricious CEO; a weak regulatory framework; and a feckless institutional shareholder group.

But I prob could have, and should have, done more personally.
The main issue was trading liquidity was near zero - meaning both inability to build a blocking stake, and presenting huge headaches post-deal.

Nevertheless the solution would have been to more actively bid some of those same disinterested instos who just intended to tender.
Read 9 tweets

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