Gold Plunges, Stock thoughts: CPG, SMC, MPI

Gold Plunges

A good article presenting valid reasons for the decline of gold price:

http://www.interaksyon.com/business/59519/gold-prices-plunge-to-lowest-level-in-2-years

As long as gold prices won’t go down below $1,000 there is nothing to worry about. If it does then APX would operate at a loss again and PX’s income would be trimmed a lot.

CPG

CPG declared cash div:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3087_CPG.pdf

CPG should have not declared cash div. Management should have plowed the cash back to the Company.

My opinion only.

SMC

Yesterday I asked how SMC will fund their projects, I guess it would be through this $2 B note:

http://www.bworldonline.com/content.php?section=Corporate&title=San-Miguel-readies-up-to-$2-B-debt-notes&id=68715

MPI

MVP group also raised some capital through First Pacific’s $400 million international bond offering:

http://www.philstar.com/business/2013/04/16/931056/mvp-set-expansion

They claimed it was 7.5x oversubscribed.

Done!, EU Turmoil- Cyprus, Stock Thoughts: MBT

Done!

1 semester down, 4 to go! 🙂

I learned a lot that is worth sharing. I will be including a new category in this blog: MBA

Corporate Social Responsibility posts:

https://fundamentalenthusiast.wordpress.com/2013/03/18/yahoo-ban-of-work-from-home-policy-case-analysis/

https://fundamentalenthusiast.wordpress.com/2013/03/18/philex-mining-company-case-analysis/

https://fundamentalenthusiast.wordpress.com/2013/03/18/philippine-airlines-pal-vs-philippine-airlines-employees-association-palea/

 

EU Turmoil- Cyprus

A tax that will charge 6.75% for 100k euro deposits and 9.9% on deposits above 100k euro is part of the agreement for Cyprus to receive the bail-out fund or the country will face default.

http://www.bloomberg.com/news/2013-03-17/europe-braces-for-renewed-turmoil-as-cyprus-deposit-levy-at-risk.html

This decision will still be voted:

http://www.bloomberg.com/news/2013-03-17/cyprus-parliament-to-vote-on-deposit-levy-demanded-by-euro-area.html

Do you think that the decision to tax the deposits will push through? I think it should. Painful, but it should.

Would it affect us? I think most of the consumer and energy industry will not be affected but should the market overreact, nobody is stopping you to take advantage of the market.

What companies will benefit the most? Selected companies in the gold mining industry.

More on gold:

https://fundamentalenthusiast.wordpress.com/2012/08/27/gold-fundamentals/

 

MBT

Nice one MBT! 30% stock dividend! 🙂

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2287_MBT.pdf

The Company declared the property dividend as part of the Company’s increase in authorized capital stock.

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.

Investing in Lepanto Consolidated Mining, Inc.

As indicated in the charts above, Lepanto Consolidated Mining (LC, the “Company”) experienced two declines in share price, on May and on July. May decline was caused by removal of LC from the PSE index while July was due to the release of Executive Order (EO) 79. The EO 79 that was rleased in July served as a huge blow for LC’s share price. LC’s Mineral Production Sharing Agreement (MPSA) will expire in 2015 and originally, EO 79 states that there are no renewal of MPSA until new tax rates are approved by congress.

LC’s story is their interest in Far Southeast Gold Resources, Inc. (FSGRI). On September 20, 2010, the Company approved an Option on Shareholder’s Agreement (Agreement) with Gold Fields Switzerland Holding AG (GFS), a wholly owned subsidiary of Gold Fields Limited, for a non-refundable option fee of $ 10 million.

The Agreement requires GFS to:

I.      Fund the exploration and feasibility study of the FSGRI mining project

II.      Contribute $110 million into FSGRI

III.      Contribute proportionate share of the development cost

The Agreement grants GFS an eighteen-month option to subscribe to new shares of stock of FSGRI representing 20% interest in FSGRI. However, as of to date, GFS is yet to exercise their right pending the acquisition of Financial or Technical Assistance Agreement (FTAA) license—which allows a foreign corporation to legally own and control a majority stake of large-scale mineral resources in the Philippines. If the option is exercised the Company’s interest in will be reduced from 60% to 40%.

The Far Southeast project is covered by MPSA No. 001-90 which is granted on March 3, 1990 and is believed to have 19.8 million oz. of gold reserve.[1] On October 08, 2012, a revised rules and regulations to the implementation on EO 79 was signed which allows the renewal of expired mining contracts even before the congress approves new tax rates for mining. [2][3] This latest developments suggests that the story of LC is still substantially intact. GFS may proceed with the MPSA and increase their interest to 60% in FSGRI as soon as they will be legally allowed to have FTAA.

Risk in investing in LC

Take note that the conversion of MPSA to FTAA is still not allowed until the approval of new mining tax rates. Since FTAA allows ownership of more than 50% in Philippine mining operations, GFS may opt to cease their operation and wait for the new mining tax rates.

Sources:

  1. Update on Far Southeast Project, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6671_LC.pdf
  2. Rules and Regulations to the Implementation on EO 79, http://www.mgb.gov.ph/Files/Policies/DAO%202012-07.pdf
  3. Department Administrative Order 2012-7-A, http://www.rappler.com/business/special-report/whymining/whymining-latest-stories/13865-paje-signs-final-mining-rules?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rappler+(Rappler)

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Everything About Philex

Philex Mining Corporation (PX) was incorporated on July 19, 1955 and went public on November 25, 1956. The company derives its revenues from sale of gold, copper, silver, and petroleum. Gold, copper, and silver contributes 96% of the Company’s revenues net of marketing charges through their operation of Padcal Mine in Benguet. Petroleum which provides approximately 4% of the Company’s revenue is sourced from their interest in the Galoc oil field through their interest in Philex Petroleum Corporation. Below is the Company’s corporate structure:

PX’s Padcal Mine in Padcal, Tuba, Benguet Province produces copper concentrates containing copper, gold, and silver.  The Company has an existing long-term gold and copper concentrates sales agreement with Pan Pacific where at least 60% of the total annual production is committed since 2009. The uncommitted balance was subject to a contract with Louis Dreyfus Commodities Metal Suisse S.A. The value of the shipments is initially determined based on prices during the final quotation period.

The final quotation period for gold and silver is one month after month of arrival in Japan while quotation period for copper are two months after month of arrival in Japan for the period April 2010 to March 2011 and three months after month of arrival in Japan for the period April 2011 to March 2012.

Padcal mine is covered by two mineral production sharing agreement (MPSA), MPSA 156-2000-CAR and MPSA 276-2009-CAR valid up to 2025 and 2034 respectively.

As of December 31, 2011, the Padcal Mine’s mineral resources and proved reserves are estimated as follows:

In August 2011, the economic life of Padcal Mine was extended to year 2020 from 2017. A total area of 13,729 hectares within the municipalities of Tuba and Itogon in Benguet is covered by the following mining agreements:

The Company spent P324.2 million and P271.7 million in 2011 and 2010 respectively for environmental compliance.  The Company and its subsidiaries have been consistent winners in environmental contests. Padcal mine has been ISO14001 Certified since 2002 for Environmental Management System and won several environmental contest namely, Best Mining Forest first runner-up in 2010 and 2009, and champion in 2008, 2007 and 2011[1].

The Company is currently exploring and developing mine sites which is done internally or through drilling contractors incurring P2.022 billion, 1.246 billion and P855 million for 2011, 2010, and 2009 respectively.

The Silangan Project which is owned by the company through Silangan Mindanao Mining Co., Inc. (SMMCI) covers Boyongan and Bayugo deposits in Surigao which are currently under pre-feasibility stage. Anglo American Exploration (Anglo) completed a prefeasibility study of the Boyongan deposit in December 2007 and concluded the project to be not feasible which PX disagree. In November 2008, Anglo offered to sell their 50% interest in the project. In February 2009, Anglo’s interest in the project was purchased by PX for $55 million.

As of August 5, 2011, Boyongan and Bayugo which is covered by MPSA-149-99-XIII (to expire on 2024) and EP-XIII-03 Lot-B located in Surigao de Norte has the following estimated mineral resources:

In May 2011, the Company executed a Farm-In Agreement with Manila Mining Corporation through the purchase of 5% interest in Kalayaan Gold-Copper Resources Inc. (KGCRI) for $25 million[2] where the Company should conduct exploration activities in the Kalayaan properties (adjacent to Bayugo deposits) for three years. Should it declare commercial feasibility within the period, PX will have the right to increase their holdings in KGCRI to 60%.

Other mining projects of the Company that are at advance stages are the Bulawan mine in Negros and Sibutad mine in Mindanao. Bulawan mine and Sibutad mine operated on 1996 and 1997 respectively and both ceased their operations in 2002 due to unfavourable metal prices. As of December 2011, the Company is contemplating in reopening the Bulawan mine and conducted diamond drilling to come out with a resource estimate. Sibutad mine which has a remaining resource of 17.1 million tonnes with 0.84 g/t is temporarily at standby due to the standing open-pit ban in the province that they are operating.

Another source for revenue for the Company is the sale petroleum. Petroleum revenues came from their ownership of Philex Petroleum Corporation (PXP) which has a minority interest in Galoc oil field. An interesting business development for the Company is the commencement in commercial operation of their subsidiary Brixton Energy & Mining Corporation (BEMC) in 2010. BEMC previously engaged in buying coal products from small producers and selling it by bulk since 2005.  On January 16, 2012, BEMC entered into purchase agreement with Republic Cement Corporation for the delivery of 50,000 MT with a base price of P3,200/MT. On May 21, 2012, PXP expressed their confidence to be able to sell 100% of BEMC’s output of 100,000 MT of coal and plans to expand operations through bidding for the six coal blocks near existing Brixton coal project. [3]

Other Data

Source:
1.   “MINING FOREST PROGRAM REFORESTS 88% OF DISTURBED MINING AREAS”; http://www.mgb.gov.ph/art.aspx?artid=320
2.   “Agreement with MA for exploration and development of Kalayaan Project; Lifting of trading suspension” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3577_PX.pdf
3.   Clarification of news article: “Philex expects to sell off full Brixton output” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3916_PXP.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.