Apex Mining Company, Inc. (PSE: APX) (PSE: APXB)

Business Profile

Apex Mining Co., Inc. (the “Company”) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on February 26, 1970 and listed its shares on March 7, 1974. On August 24, 2005, Crew Gold Corporation (Crew Gold), an entity incorporated and doing business in Canada, and its associated Philippine company, Mapula Creek Gold Corporation (Mapula), acquired 28.03% and 44.88% of the Company’s shares, respectively, by virtue of the Share Purchase Agreement (SPA) entered into by both Crew Gold and Mapula with the previous majority shareholder (Puyat Group).

In October 2009, Crew Gold completed its divestment in the local mining industry and sold its equity share in the Company, as well as to local affiliates including Teresa Crew Gold (Philippines), Inc. (Teresa) and Mapula to Mindanao Gold Ltd. (Mindanao Gold).

As of December 31, 2009, the Company’s majority shareholder is Mapula Creek a Philippine incorporated company.

The Company is a holder of two Mineral Production Sharing Agreements (MPSA) namely, MPSA No. 225-2005-XI, approved on December 15, 2005 with a total area of 679.02 ha located within the Municipality of Maco and MPSA No. 234-2007-XI, approved on June 8, 2007 with a total area of 1,558.53 located within the Municipalities of Maco and Mabini. All mining Tenements are in the Province of Compostela Valley. On April 12, 2012, they disclosed an increase total gold resource potential of 1.118 million troy ounces from 588,000 troy oz. on 2009. [1]

In 2011, the Company milled 202,580 tonnes of ore producing 26,257 troy oz. of gold and 146,295 oz. of silver. Although the increase in the tonnes milled from previous year was only 5%, the increase in gold prices boosted their revenue growth as compared to 2010 by 31% narrowing their net losses to 39 million from 120 million in 2010.

On a disclosure on February 3, 2012[2], the Company announced their plans to expand their current mining operations in Maco and reopening of historic mining areas. The Company also plans to migrate the current ore processing facility to a new expanded facility with a threefold increase in milling capacity by 2013. The Don Calixto, Don Fernando, and Wagas veins are undergoing access rehabilitation and development as future sources of ore production by the 3rd quarter of 2012 which they expect to add 30% to the existing plant’s capacity. [3]

On November 18, 2011, Monte Oro Resources & Energy Inc. (Monte Oro) initiated a private placement to APX equivalent to 5% of the total outstanding shares of the company for a consideration of approximately 3.28 per share. [4] Monte Oro increased their interest in the Company for another 7% on July 3, 2012 for a consideration of 4.40 per share. [5]

On December 1, 2011, SEC approved the merger between Apex Mining Co., Inc. and Teresa Crew Gold Philippines, Inc (Teresa) effective January 1, 2012. [6]

On May 9, 2012, the Company disclosed significant potential of the Maco Porphyry System which they are committed to fund its exploration for the next two years. In the first quarter of 2012, they purchased two additional high-capacity diamond drill rigs which are scheduled to commence drilling on June.[7]

On July 16, 2012, the Company’s board approved the issuance of shares to the following: [8] [9]

Other data:

Comments:

Based on a conservative estimate of $1,600/oz. of gold at an exchange rate of P42/$ and an average milled ore of 695 tonnes/day, I expect APX to realize an earnings per share of .05. The reversal of 2012 results from a loss on 2011 would be largely due to the rent savings that will be generated on the merger between Apex and Teresa and the income tax holiday which is effective until 2013. Prior to the merger, Apex pays 15% of gross revenue to Teresa as payment for the rental of Teresa’s assets for milling operations. Rent expenses paid to Teresa on 2011 and 2010 are 306 million and 244 million respectively.

With the expected opening of historical veins in the third quarter of 2012, increase in milling capacity and increase in free cash flows due to rent savings, I believe that an average ore milled of 1,150 tonnes/day for 2013 is achievable considering that the company aims to expand production to 2,400 tonnes/day by 2013. Assuming that the price of gold remains above $1,500/oz. at an exchange rate of P42/$, I expect the company to realize .53 earnings per share.

The average price that Monte Oro paid for the 12% interest in Apex amounts to 3.97 per share which is only 7.49x estimated earnings for 2013. Apex is currently trading at 9x of estimated 2013 earnings at P5.00. To put the figures in perspective, Philex Mining Company, the largest mining company in the Philippines currently trades at 18x earnings.

Apex’s huge room for growth through increase in ore milled, promising mineral resource, favorable gold prices, stable forex rates, and the Company’s conservative use of leverage makes APX a company good for holding in the next 18 months.

Sources:

1.   “Press Release: Apex Mining Reports a Substantial Increase of Gold Resource Potential to 1.12 Million Troy Ounces at its Mining Operations ” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-2678_APX.pdf
2.   “Board approval of management business plan re: Maco Mining Operation, election/appointment of director/officer” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-1036_APX.pdf
3.   “Press Release: “Apex Mining Posted P50 million income in Q1 of 2012; Readies Expansion Program” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-4592_APX.pdf
4.   “Press Release re: Monte Oro Investment into Apex” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8120_APX.pdf
5.   “Board approval of issuance of additional shares of Monte Oro Resources & Energy, Inc.” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5074_APX.pdf
6.   “SEC approval of Articles and Plan of Merger between APX and Teresa Crew Gold Philippines, Inc.” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8918_APX.pdf
7.   “Press Release: Apex Mining Company Initial Exploration Drilling Confirms Significant Potential of the Maco Porphyry System” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3531_APX.pdf
8.   “Board approval of additional share issuances to Viscal Development Corporation, Mindanao Gold Ltd. And Mapula Creek Gold Corporation; Trading Halt”  http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5363_APX.pdf
9.   Results of Organizational Meeting of Board of Directors: resignation/election of directors/officers/committee members, issuance of Class A shares to Solar Securities, Inc., amendment of issuance of Class A shares to Viscal Development Corporation http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5478_APX.pdf

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