Re-rating Atlas Mining
The current stock play in Atlas Consolidated Mining and Development Corp. (AT) is again about to change.
As confirmed and disclosed after trading hours last Friday by both parties concerned, it was the publicly listed flagship company of the Henry Sy group, SM Investments Corp. (SM), that picked up the private placement involving the issuance of 316,242,331 primary shares of AT equivalent to approximately $142.2 million.
To recall, a “combination debt and equity securities” financial package was made to enable AT to acquire the 45.54-percent equity interest of its divesting private equity partners CASOP Atlas Corp. and CASOP Atlas BV in subsidiary company Carmen Copper Corp. (CCC).
As presented in the public briefing a week ago, this will entail the issuance to “target investors” of 700,536,809 AT primary shares at P19.56 each. This offer price is equivalent to a premium of 8.5 percent over AT’s 30-day weighted share price average of P18.0339. This exercise will, as well, result in the dilution of present stockholders’ ownership interest in the company to about 33 percent.
The financing plan consisted of four components. The first is the private placement of AT shares (as mentioned above) to be underwritten by BDO Capital and Investment Corp. This is followed by the issuance of a five-year convertible note to publicly listed Banco de Oro Unibank (BDO) amounting to $75 million. The next entails the issuance of a one-year note to BDO with the face amount of $122.8 million, convertible into 273,098,159 AT shares. The last involves the issuance of 111,196,319 AT shares to Alakor Corp. amounting to US$50.0 million.
The five-year convertible notes will bear a 7-percent interest a year. It will have a one-year grace period for the payment of the monthly amortization of the principal, whose repayment will be made in equal monthly amortization over a period of four years.
It is convertible into AT shares, too, but only in the event of payment default. This note must be secured by a further guarantee provided by CCC. In case of default, the debt obligation will be convertible into AT common shares at the price of P19.56 a share based on the exchange rate of $1 to P43.50.
But as it is, the above enumerated financial plan will only result into two things: It will raise $390 million that will pay for the $368-million bill to increase AT’s ownership interest to 100 percent from 54.46 percent in CCC and provide about $22 million only for CCC’s general working capital requirements.
It does not completely address AT’s growth concerns of increasing its daily production capacity to 100,000 metric tons from the current 42,000 within the next three years that will require—according to their announcement—another $200-million funding.
At the least, the structure and manner of how the additional $200-million funding required on its production capacity expansion is another additional factor to consider in the reassessment of AT as a vehicle for investment growth and value.
Bottom-line spin
SM will have an effective equity ownership interest equivalent to about 17.9 percent on the expanded issued and outstanding capital stock of AT upon the issuance of the shares of the subject private placement.
As part of this latest development, AT has now a strategic financial partnership with the financially strong investment company, SM, as it had “directed part of its investment portfolio to take advantage of opportunities in the commodities market,” particularly the base metal sector.
According to the press statement, the flagship company of the Henry Sy group has favored the investment in AT, especially for base metal, because it “is expected to remain buoyant in the near future owing to the very strong demand from major Asian economies.”
With this financing assistance, it will help AT to fully realize the operational advantage it has for better profitability: The Carmen mine site is only 16 kilometers away from AT’s own port, passing through roads owned by AT that will enable it to ship its output to its major customers like China, which “consumes about 40 percent of total copper production.”
Therefore, the financial deal entered into by AT is fundamentally sound and certainly regular. Present stockholders, the minority included, should be happy with the financial scheme.
While it will dilute present stockholders’ interest to 33 percent, it immediately increases earnings to about 84 percent without any change in the operating level and efficiency of CCC.
Seen within the context of the submitted first-quarter operating report of AT (which was mainly due to CCC’s performance), interim earnings per share (EPS) would have been P0.76 instead of P0.62.
Stretching our imagination to annualize the reported first-quarter earnings (P0.76 times 4 quarters equals P3.06) to the easy-to-understand price-earnings (P/E) ratio method, at 10 times earnings per share, the market price of AT should be no less than P30.60 a share now.
Following the market range of about 14 to 24 times P/E, AT’s market price should amount to about P42.84 to P73.44 a share—a market price that is not just great but totally fantastic by today’s market standards.
(You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.)
