What I Wish APX’s Management Would Do

Apex Mining Company, Inc. (APX), exhibits favorable business developments:

  1. Merger with Teresa Crew Gold Philippines, Inc.
  2. Plans for expansion current mining operations.
  3. Plans for a threefold increase in milling capacity by 2013.
  4. Significant potential of the Maco Porphyry System.

Private investors had expressed their confidence through private placements and preference of creditors in conversion of debt to equity.

MPSAs were approved on December 15, 2005 and June 8, 2007 which allows APX to enjoy an excise tax rate of only 2% of gross revenues until 2032 contrary to the pending excise tax of 5% for new mining contract holders in the future.

Favorable gold prices, regulatory advantages, young MPSA contracts, satisfactory gold resource, ability to expand operations, and good relationship with the community provide APX competitive advantages.

In my humble knowledge, I wish APX’s management would do the following to increase shareholder value:

  1. Simplification of APX’s capital structure by:
    1. Declassifying existing common shares into just one class of common shares
    2. Reduction of par value from P1.00 to P.01
  2. Use of share premium to eliminate deficit.
  3. Deferment of asset write-off until 2013.

 

Rationale:

  1. At present, the Company has APX and APXB trading in the stock market. APX is exclusive for local shareholders while APXB is non-exclusive. In my humble opinion, there is no advantage on maintaining two classes of shares but only confusion in valuation.Par reduction to P.01 will better align the Company with other gold mining companies with huge growth potentials. The increase in number of shares will also enhance APX’s liquidity and marketability to investors.
  2. Teresa merger, private placements, and debt to equity conversions executed by the Company will generate approximately P1.3 billion share premium. This would make APX’s share premium for the end of 2012 stand at P2.8 billion which is enough to wipe out a deficit of only P1.9 billion as of the end of 2011.A balance sheet with no deficit is not only pleasing to the eyes of future investors but will also provide the Company ways to add shareholder value through cash dividends or stock dividends. A company that provides high shareholder value will reap its rewards through ease of raising capital from the market.
  3. APX enjoys a tax holiday until 2013. APX would be better off if it defers major asset write-offs until 2013 in order to maximize profit without the burden paying income tax expenses and in effect attract more interest from investors and analyst coverage.The two years remaining income tax holiday is enough for APX to expand the milling capacity to three folds and the porphyry system exploration to mature. The three fold expansion of milling capacity will provide the natural advantage of economies of scale thus generates more profit for the Company which will be the right time to write-off assets without presenting loss in the financial results of 2014.
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One thought on “What I Wish APX’s Management Would Do

  1. Pingback: Stock thoughts: APX, SMPH | Fundamental Enthusiast

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