At a share price of 3 cents per share and 168.7 million shares outstanding, CMM has a market cap of just over $5 million. With almost 5 million of 43-101 certified ounces, that is equivalent to $1 per ounce for a commodity trading at $800 per ounce. Absurd to say the least!
However a more realistic valuation may be based on the enterprise value of the company. This is defined as market cap - cash + debt and is equivalent to what someone would have to pay to buy the company based on its current market cap.
In CMM's case they have cash + investments + accounts receivable + inventory (primarily 3,200 oz of gold in the Lamaque milling circuit) + prepaid expenses = $9.7 million.
On the debt and financial obligations side they have long term debt + loans+ accounts payable + lease obligations + hedge payouts + asset retirement obligations = $48.2 million.
Therefore their enterprise value is $5 million - $9.7 million + $48.2 million = $43.5 million.
So what does a potential buyer get for $43.5 million?
We have buildings, plant and equipment and spares that cost us $73 million, but original capital costs for most of this for the previous owners was much higher.
We have 43-101 certified 4.9 million oz of gold, including 1.3 million ounces of reserves and it's only a matter of time before a lot of the resources get converted into reserves.
We have $80 million in future tax credits at Lamaque.
We have significant exploration potential at S-L and other surrounding properties.
We have good exploration potential for a copper-gold porphyry at the Erika property at San Juan.
We have the potential to receive millions of dollars in settlement of the Poderosa property.
What we don't have is the cash needed to realize all of this potential. If we do get the Fortis financing then the current share price should be the bargain of the century. If not, I can't imagine we couldn't get multiples of 3 cents for the sale of the company.
3 comments:
On a day where we get a decent piece of news that removes a black cloud of uncertainty and a possible impediment to financing and institutional interest in the company, Cannaccord hammers the share price by selling over 4.6 million shares at 3 to 3.5 cents.
Where's the logic in that?
IMO this is very likely shorting of the stock. Most Canadian brokerages won't let you short a penny stock, but I don't think that applies to Cannaccord and naked shorting of stocks on the Venture Exchange is not uncommon.
Why would anyone short a 3-cent stock you may ask? The upside is only 3 cents but the downside could be 10, 20 ... times that.
There are three possible reasons I can think of.
1. They are protecting an existing large short position taken in June/July when Cannaccord sold 13 million shares at much higher prices.
2. They are acting on behalf on a client that intends to make a lowball hostile takeover bid for the company. A bid of even 10 cents looks pretty good to those that have bought millions of shares at sub 10-cent prices in the past 2 months.
3. A third possibility is that they (or their client) are participating in an upcoming financing with an equity component and the lower the share price, the more shares they will get for the equity component. Recall that the MRI financing had an equity component where $1 million of the total $6 million planned financing was convertible into shares at 18 cents. That would have been 6 times more shares at a share price of 3 cents.
Today's trades have been posted.
carib, you're famous: someone posted your comments on the SH.
CMM looks as though they're gradually eliminating nagging issues that could potentially sabotage a Fortis deal.
A hostile bid at 10 cents should signal to current shareholders that the potential buyer spots a huge bargain with tremendous upside. Where else are you going to find 4.3 million 43-101 ounces in the #1 mining jurisdiction on Earth at sub-4 cents. KLA next door must be shaking their heads.
Thought that this might be of interest to readers.
It is 17 part series specifically on Mining Valuation.
http://www.stockresearchportalblog.com/category/valuation-of-mining-companies/
Enjoy!
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