Aberdeen International AAB.TO
August 18, 2008 - 8:04am EST by
john771
2008 2009
Price: 0.40 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 41 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

Aberdeen International is a natural resource merchant banking fund with strong management, an attractive portfolio, and it currently trades at less than half of its NAV. AAB may be of particular interest if you ever invested in Endeavour Mining Capital.

BASIC FACTS

Symbol:
TSE: AAB
OTC: AABVF
Last Trade
$0.40
Basic Shares Outstanding
102,680,682 at 4/30, company subsequently repurchased 500,000+
Warrants
4.5mm at $0.80 exp 6/6/9
37mm at $1.00 exp 6/6/12
Options
5.9mm avg $0.80, all currently out of the money
Market Cap
$41mm
Average Daily Volume YTD
198,871 shares
Major shareholders
RAB Special Situations
QVT Financial
Website
Investor contact
Scott Moore – Corporate Development 416-861-5875
smoore@aberdeeninternational.ca


MANAGEMENT & PORTFOLIO

Aberdeen's management is led by Stan Bharti and George Faught drawing on the staff of their private Forbes and Manhattan merchant banking group as needed. Their most significant past successes have been:

  • Desert Sun Mining
  • First Uranium
  • Consolidated Thompson Mines

Aberdeen's strategy is to invest in companies where F&M management and consultants can play a significant role in helping a company realize value within a relatively short time frame (goal is 18-24 months). This usually means a substantial resource that was poorly managed, poorly financed, or poorly promoted. Review of the projects shows a focus on high grade resources with good feasibility and robust economics.
 
Here's a brief introduction to Aberdeen's largest holdings. Note: total portfolio is about $116mm and all amounts shown are Canadian dollars unless otherwise noted.

Simmer and Jack/First Uranium debenture and royalty
Investment Amount: $12mm
Estimated Value at 8/15/2008: $53mm
Company website: http://www.simmers.co.za/sjfu/view/sjfu/en/page14 and
http://www.firsturanium.com/cws/projects/firsturanium/index.jsp

Investment thesis - Aberdeen provided a US$10mm convertible loan that enabled Simmers to acquire several South African mines at bargain prices from DRDGold when it was in severe financial distress. The loan is convertible into Simmers shares at 0.8 Rand. Conversion requires shareholder approval and if denied then Aberdeen receives a 1% NSR over the life of the assets acquired from DRDGold. Following the initial purchase, Simmers remained short of capital so F&M facilitated the spin-out of two projects into a Toronto-listed entity, First Uranium (FIU). FIU's Mine Waste Solutions project falls under Aberdeen's 1% NSR. The FIU listing was a huge success generating tremendous value for Simmers. Simmers shares now trade around 4 rand, far in excess of the debenture conversion price. Simmers and First Uranium have expanded their resources and production forecasts. Due to the huge appreciation in its shares Simmers shareholders are unlikely to approve conversion of the debenture so Aberdeen will receive repayment of the debenture (US$10mm) by 12/31/08 and the 1% NSR. Aberdeen's current plan is to sell the royalty. Aberdeen currently carries it on the balance sheet at a fair value of $49mm calculated using Simmers and FIU production forecasts, a long-term gold price of $700/oz, a 5% discount rate, and a CAD/USD rate of 1:1. Aberdeen has had preliminary discussions with potential buyers and says they are willing to be more aggressive with the gold price assumption, may be conservative with the discount rate, and may be willing to pay some premium for Simmer's potential to expand production. Aberdeen expects to reach agreement and receive sale proceeds in 1Q09.

Quinto Mining shares + warrants
Acquired by Consolidated Thompson Mining
Investment Amount: $4mm
Estimated value at 8/15/08: $8mm
Company website: http://www.consolidatedthompson.com/index.asp.htm

Investment thesis - Aberdeen management has been closely involved in the development of Consolidated Thompson from a $2mm junior into a $760mm company on the verge of opening a significant iron mine at Bloom Lake in Quebec. The most attractive aspect of this development is proximity to high quality rail and port infrastructure. Quinto (QU) owned claims close to Consolidated Thompson's property. Aberdeen made an initial investment in Quinto alongside CLM. Aberdeen's investment was then converted into CLM shares + warrants when CLM acquired QU. On the last cc Aberdeen said it believes CLM shares are undervalued, but Aberdeen would also like to recycle its capital into new positions, perhaps by selling some CLM shares and retaining the warrants. CLM is well-financed with $335mm in cash and no debt. Total expenditures to bring Bloom Lake into production are budgeted at $410mm; it should be no problem to find debt financing for the unfunded balance.

Central Sun Mining shares + warrants
Investment Amount: $7mm
Estimated value at 8/15/08: $5mm
Company website: http://www.centralsun.ca/index.php

Investment thesis - Glencairn Gold suffered a corporate crisis when the tailings dump at its Bellavista mine in Costa Rica became unstable. The company was out of cash and investors were out of patience. Aberdeen and F&M organized a refinancing and a new operational plan that would shut Bellavista, expand the existing and profitable Limon mine, and build a mill at the Orosi project in order to increase gold recovery rates from 38% to 90%+. With these modest developments, CSM will be able to generate high cash flow from 2009. It could be an excellent platform for regional expansion and would also be an attractive takeover target. The stock spent most of this year around double Aberdeen's acquisition price but has recently fallen due to concern about the need to raise about $20mm to complete the Orosi mill development. A feasibility study completed this year showed a 62% IRR on the mill investment and CSM believes that it can arrange debt financing for most or all of the required funding.

Labrador Iron Mines shares + warrants
Investment Amount: $4mm
Estimated value at 8/15/08: $4mm
Company website: http://www.labradorironmines.ca/

Investment thesis - Labrador (LIR) has attractive iron projects about 150km NNE of Consolidated Thompson's Bloom Lake project. Aberdeen's involvement in CLM should provide excellent insight into the potential value of LIR. LIR's initial projects will be low cost redevelopment and expansion of sites that were operated by Iron Mines of Canada from 1954 – 1982. Aberdeen management did not take any role at LIR, but it's possible that at some point CLM will try to acquire LIR. LIR is well-financed with $46mm in cash and no debt. Cash on hand should be more than enough to bring the first phase of the project into production in 2010.

Largo Resources convertible loan
Investment Amount: $4mm
Estimated value at 8/15/08: $4mm
Company website: http://www.largoresources.com/

Investment thesis – Largo has an exceptional Vanadium project in Brazil. The feasibility study released last week shows a 44% IRR on a required investment of $270mm. The high-grade near-surface resource would allow Largo's mine to be one of the lowest cost producers in the world. Largo has excellent partners for offtake (Glencore) and financing (Investec). Discussions with Investec have led Largo to believe that the robust economics of the project will allow $250mm of debt financing to be raised leaving only a modest equity financing requirement.

Other positions disclosed by Aberdeen with current value greater than $1mm are:

  • Avion Resources, redevelopment of a mine in Mali
  • Russo-Forest, private timber company in NW Russia
  • U308, uranium exploration in Guyana
  • Sulliden Exploration, gold development in Peru
  • Longford Energy, shell company for new oil and gas venture
  • Tucano Resources, private Brazil mining start-up
  • Virginia Uranium, private uranium company with large resource
  • Magma Metals, Australian company with exciting platinum development
  • Franc-Or Resources, Peru polymettalic project

DISCOUNT TO NAV

While I believe that many of the positions in the portfolio are attractive, the most appealing thing about Aberdeen is the large discount of the shares to the current NAV. Aberdeen will report second quarter results in early September and I believe these are likely to show an NAV above $1 per share at July 31. The company provides enough disclosure that the NAV can be estimated in real-time and can be tested using various valuation assumptions that show a large margin of safety is built into the current share price.

Approach
More Conservative
Method
Conservative
Method
Market
Method
Asset



Cash
100%
100%
100%
Debenture redemption
100%
100%
100%
Royalty 2008 income
Assume 25% lower production, $800 gold
Target Production, $800 gold
Target Production, $800 gold
Royalty Long-term
10% lower production, $700 gold, 10% discount rate, C$=0.9US$
Target production, $700 gold, 5% discount rate,C$=0.95US$
Target production, $700 gold, 5% discount rate,C$=0.95US$
Publicly Traded shares
20% discount to market
10% discount to market
Market price
Warrants on public shares
Intrinsic value only
Black Scholes model adjusted for dilution, 50% volatility
Black Scholes model, 50% volatility
Private shares
50% of cost
75% of cost
At cost


I estimated Aberdeen's 8/15/08 balance sheet and valuation under these different approaches. Amounts in C$mms. Sums may be slightly off due to rounding.
Approach
More Conservative
Method
Conservative
Method
Market
Method
Assets



Cash
$10.0
$10.0
$10.0
Debenture redemption
$10.5
$10.5
$10.5
Royalty 2008 income
$4.2
$6.2
$6.2
Royalty Long-term
$23.6
$36.2
$36.2
Publicly Traded shares
$31.5
$35.5
$39.4
Warrants on public shares
$4.0
$5.4
$7.4
Private portfolio
$2.9
$4.3
$5.8
Total Assets
$86.7
$108.1
$115.5
Liabilities



Accruals and Payables
$2.8
$2.8
$2.8
Tax Accrual
$9.5
$14.7
$15.8
Total Liabilities
$12.3
$17.5
$18.6




Net Assets
$74.5
$90.6
$96.9




Shares
102
102
102
NAV per share
$0.73
$0.89
$0.95
Cash & Royalty per share
$0.47
$0.62
$0.62

The most appealing aspect of the current valuation is that the current share price is well-supported by the value of the cash and royalty only.

CORPORATE GOVERNANCE

Stan Bharti describes Aberdeen as a vehicle for investors to join his deals at the earliest stage when potential returns are greatest, but the companies may be illiquid and public information may be limited.

Compensation: Aberdeen pays corporate overhead and the management earns an incentive fee equal to 10% of realized profits. The fee has been accrued in the financial statements. Management has also been granted options to purchase Aberdeen shares at $0.80

Share Repurchase: Aberdeen has an active share repurchase plan. It was disclosed in June that 1.2mm shares have been repurchased this year and I believe repurchases continued in July.

Insider Trading: Stan Bharti says that he feels restricted from purchasing AAB because he is always involved in negotiation of material transactions. Nevertheless he did purchase 125000 shares at $0.455 in February and a director purchased 40000 shares at $0.60 in March. Bharti's coinvestment with Aberdeen in portfolio companies presents an obvious potential conflict of interest over which the company has no formal policy. Bharti explains that the exit strategy for these investments is a corporate transaction rather than open market sales. He also points out that he does not actively trade his investments and SEDI records show that his sales have been rare at the companies he is involved in. In fact he has not reported any sales in 2008.

Investment Policy: At this time Aberdeen has no formal limits on the type of investments it can make.

Disclosure: Aberdeen provides generous disclosure about its investments and strategy.

COMMODITY RISK

Aberdeen's biggest commodity exposure is currently gold through the value of the Simmers/FIU royalty. Fortunately Aberdeen has recorded the royalty at a reasonable valuation and operating performance of Simmers and FIU seems to be good this year. Obviously the price of gold has been weak recently. I believe the chance of gold appreciation over the remainder of 2008 is strong due to a mixture of the following factors:

  • Gold production is falling. Mine supply is down 6% in the first half of 2008 compared to 2007 in spite of record high prices. This is the worst supply performance of any major commodity.
  • Gold has value in a crisis. When faith in banks and central banks declines, the value of gold rises.
  • Gold is fun. Strong economic conditions in the Middle East, China, and India support discretionary buying of gold jewelry.

The worst case development for Aberdeen would be a continued decline in the price of gold to a point where Simmers and First Uranium reduced their production targets.

The second commodity risk is iron through the investment in Consolidated Thompson and Labrador. Global steel and iron demand has been strong but could be vulnerable to a recession in OECD countries and any slowdown in spending on construction and infrastructure in emerging markets.

TIMING

I believe the most significant event for shareholders will be realization of the value of the Simmers debenture and royalty by 1Q09. Aberdeen will receive a lot of cash for new investments, share repurchase, and hopefully greater awareness of the potential gains from its investment approach.

Catalyst

1) Proceeds of approximately $50mm from Simmers/First Uranium debenture and NSR
2) Performace of portfolio investments
3) Discount to NAV
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    Description

    Aberdeen International is a natural resource merchant banking fund with strong management, an attractive portfolio, and it currently trades at less than half of its NAV. AAB may be of particular interest if you ever invested in Endeavour Mining Capital.

    BASIC FACTS

    Symbol:
    TSE: AAB
    OTC: AABVF
    Last Trade
    $0.40
    Basic Shares Outstanding
    102,680,682 at 4/30, company subsequently repurchased 500,000+
    Warrants
    4.5mm at $0.80 exp 6/6/9
    37mm at $1.00 exp 6/6/12
    Options
    5.9mm avg $0.80, all currently out of the money
    Market Cap
    $41mm
    Average Daily Volume YTD
    198,871 shares
    Major shareholders
    RAB Special Situations
    QVT Financial
    Website
    Investor contact
    Scott Moore – Corporate Development 416-861-5875
    smoore@aberdeeninternational.ca


    MANAGEMENT & PORTFOLIO

    Aberdeen's management is led by Stan Bharti and George Faught drawing on the staff of their private Forbes and Manhattan merchant banking group as needed. Their most significant past successes have been:


    Aberdeen's strategy is to invest in companies where F&M management and consultants can play a significant role in helping a company realize value within a relatively short time frame (goal is 18-24 months). This usually means a substantial resource that was poorly managed, poorly financed, or poorly promoted. Review of the projects shows a focus on high grade resources with good feasibility and robust economics.
     
    Here's a brief introduction to Aberdeen's largest holdings. Note: total portfolio is about $116mm and all amounts shown are Canadian dollars unless otherwise noted.

    Simmer and Jack/First Uranium debenture and royalty
    Investment Amount: $12mm
    Estimated Value at 8/15/2008: $53mm
    Company website: http://www.simmers.co.za/sjfu/view/sjfu/en/page14 and
    http://www.firsturanium.com/cws/projects/firsturanium/index.jsp

    Investment thesis - Aberdeen provided a US$10mm convertible loan that enabled Simmers to acquire several South African mines at bargain prices from DRDGold when it was in severe financial distress. The loan is convertible into Simmers shares at 0.8 Rand. Conversion requires shareholder approval and if denied then Aberdeen receives a 1% NSR over the life of the assets acquired from DRDGold. Following the initial purchase, Simmers remained short of capital so F&M facilitated the spin-out of two projects into a Toronto-listed entity, First Uranium (FIU). FIU's Mine Waste Solutions project falls under Aberdeen's 1% NSR. The FIU listing was a huge success generating tremendous value for Simmers. Simmers shares now trade around 4 rand, far in excess of the debenture conversion price. Simmers and First Uranium have expanded their resources and production forecasts. Due to the huge appreciation in its shares Simmers shareholders are unlikely to approve conversion of the debenture so Aberdeen will receive repayment of the debenture (US$10mm) by 12/31/08 and the 1% NSR. Aberdeen's current plan is to sell the royalty. Aberdeen currently carries it on the balance sheet at a fair value of $49mm calculated using Simmers and FIU production forecasts, a long-term gold price of $700/oz, a 5% discount rate, and a CAD/USD rate of 1:1. Aberdeen has had preliminary discussions with potential buyers and says they are willing to be more aggressive with the gold price assumption, may be conservative with the discount rate, and may be willing to pay some premium for Simmer's potential to expand production. Aberdeen expects to reach agreement and receive sale proceeds in 1Q09.

    Quinto Mining shares + warrants
    Acquired by Consolidated Thompson Mining
    Investment Amount: $4mm
    Estimated value at 8/15/08: $8mm
    Company website: http://www.consolidatedthompson.com/index.asp.htm

    Investment thesis - Aberdeen management has been closely involved in the development of Consolidated Thompson from a $2mm junior into a $760mm company on the verge of opening a significant iron mine at Bloom Lake in Quebec. The most attractive aspect of this development is proximity to high quality rail and port infrastructure. Quinto (QU) owned claims close to Consolidated Thompson's property. Aberdeen made an initial investment in Quinto alongside CLM. Aberdeen's investment was then converted into CLM shares + warrants when CLM acquired QU. On the last cc Aberdeen said it believes CLM shares are undervalued, but Aberdeen would also like to recycle its capital into new positions, perhaps by selling some CLM shares and retaining the warrants. CLM is well-financed with $335mm in cash and no debt. Total expenditures to bring Bloom Lake into production are budgeted at $410mm; it should be no problem to find debt financing for the unfunded balance.

    Central Sun Mining shares + warrants
    Investment Amount: $7mm
    Estimated value at 8/15/08: $5mm
    Company website: http://www.centralsun.ca/index.php

    Investment thesis - Glencairn Gold suffered a corporate crisis when the tailings dump at its Bellavista mine in Costa Rica became unstable. The company was out of cash and investors were out of patience. Aberdeen and F&M organized a refinancing and a new operational plan that would shut Bellavista, expand the existing and profitable Limon mine, and build a mill at the Orosi project in order to increase gold recovery rates from 38% to 90%+. With these modest developments, CSM will be able to generate high cash flow from 2009. It could be an excellent platform for regional expansion and would also be an attractive takeover target. The stock spent most of this year around double Aberdeen's acquisition price but has recently fallen due to concern about the need to raise about $20mm to complete the Orosi mill development. A feasibility study completed this year showed a 62% IRR on the mill investment and CSM believes that it can arrange debt financing for most or all of the required funding.

    Labrador Iron Mines shares + warrants
    Investment Amount: $4mm
    Estimated value at 8/15/08: $4mm
    Company website: http://www.labradorironmines.ca/

    Investment thesis - Labrador (LIR) has attractive iron projects about 150km NNE of Consolidated Thompson's Bloom Lake project. Aberdeen's involvement in CLM should provide excellent insight into the potential value of LIR. LIR's initial projects will be low cost redevelopment and expansion of sites that were operated by Iron Mines of Canada from 1954 – 1982. Aberdeen management did not take any role at LIR, but it's possible that at some point CLM will try to acquire LIR. LIR is well-financed with $46mm in cash and no debt. Cash on hand should be more than enough to bring the first phase of the project into production in 2010.

    Largo Resources convertible loan
    Investment Amount: $4mm
    Estimated value at 8/15/08: $4mm
    Company website: http://www.largoresources.com/

    Investment thesis – Largo has an exceptional Vanadium project in Brazil. The feasibility study released last week shows a 44% IRR on a required investment of $270mm. The high-grade near-surface resource would allow Largo's mine to be one of the lowest cost producers in the world. Largo has excellent partners for offtake (Glencore) and financing (Investec). Discussions with Investec have led Largo to believe that the robust economics of the project will allow $250mm of debt financing to be raised leaving only a modest equity financing requirement.

    Other positions disclosed by Aberdeen with current value greater than $1mm are:


    DISCOUNT TO NAV

    While I believe that many of the positions in the portfolio are attractive, the most appealing thing about Aberdeen is the large discount of the shares to the current NAV. Aberdeen will report second quarter results in early September and I believe these are likely to show an NAV above $1 per share at July 31. The company provides enough disclosure that the NAV can be estimated in real-time and can be tested using various valuation assumptions that show a large margin of safety is built into the current share price.

    Approach
    More Conservative
    Method
    Conservative
    Method
    Market
    Method
    Asset



    Cash
    100%
    100%
    100%
    Debenture redemption
    100%
    100%
    100%
    Royalty 2008 income
    Assume 25% lower production, $800 gold
    Target Production, $800 gold
    Target Production, $800 gold
    Royalty Long-term
    10% lower production, $700 gold, 10% discount rate, C$=0.9US$
    Target production, $700 gold, 5% discount rate,C$=0.95US$
    Target production, $700 gold, 5% discount rate,C$=0.95US$
    Publicly Traded shares
    20% discount to market
    10% discount to market
    Market price
    Warrants on public shares
    Intrinsic value only
    Black Scholes model adjusted for dilution, 50% volatility
    Black Scholes model, 50% volatility
    Private shares
    50% of cost
    75% of cost
    At cost


    I estimated Aberdeen's 8/15/08 balance sheet and valuation under these different approaches. Amounts in C$mms. Sums may be slightly off due to rounding.
    Approach
    More Conservative
    Method
    Conservative
    Method
    Market
    Method
    Assets



    Cash
    $10.0
    $10.0
    $10.0
    Debenture redemption
    $10.5
    $10.5
    $10.5
    Royalty 2008 income
    $4.2
    $6.2
    $6.2
    Royalty Long-term
    $23.6
    $36.2
    $36.2
    Publicly Traded shares
    $31.5
    $35.5
    $39.4
    Warrants on public shares
    $4.0
    $5.4
    $7.4
    Private portfolio
    $2.9
    $4.3
    $5.8
    Total Assets
    $86.7
    $108.1
    $115.5
    Liabilities



    Accruals and Payables
    $2.8
    $2.8
    $2.8
    Tax Accrual
    $9.5
    $14.7
    $15.8
    Total Liabilities
    $12.3
    $17.5
    $18.6




    Net Assets
    $74.5
    $90.6
    $96.9




    Shares
    102
    102
    102
    NAV per share
    $0.73
    $0.89
    $0.95
    Cash & Royalty per share
    $0.47
    $0.62
    $0.62

    The most appealing aspect of the current valuation is that the current share price is well-supported by the value of the cash and royalty only.

    CORPORATE GOVERNANCE

    Stan Bharti describes Aberdeen as a vehicle for investors to join his deals at the earliest stage when potential returns are greatest, but the companies may be illiquid and public information may be limited.

    Compensation: Aberdeen pays corporate overhead and the management earns an incentive fee equal to 10% of realized profits. The fee has been accrued in the financial statements. Management has also been granted options to purchase Aberdeen shares at $0.80

    Share Repurchase: Aberdeen has an active share repurchase plan. It was disclosed in June that 1.2mm shares have been repurchased this year and I believe repurchases continued in July.

    Insider Trading: Stan Bharti says that he feels restricted from purchasing AAB because he is always involved in negotiation of material transactions. Nevertheless he did purchase 125000 shares at $0.455 in February and a director purchased 40000 shares at $0.60 in March. Bharti's coinvestment with Aberdeen in portfolio companies presents an obvious potential conflict of interest over which the company has no formal policy. Bharti explains that the exit strategy for these investments is a corporate transaction rather than open market sales. He also points out that he does not actively trade his investments and SEDI records show that his sales have been rare at the companies he is involved in. In fact he has not reported any sales in 2008.

    Investment Policy: At this time Aberdeen has no formal limits on the type of investments it can make.

    Disclosure: Aberdeen provides generous disclosure about its investments and strategy.

    COMMODITY RISK

    Aberdeen's biggest commodity exposure is currently gold through the value of the Simmers/FIU royalty. Fortunately Aberdeen has recorded the royalty at a reasonable valuation and operating performance of Simmers and FIU seems to be good this year. Obviously the price of gold has been weak recently. I believe the chance of gold appreciation over the remainder of 2008 is strong due to a mixture of the following factors:


    The worst case development for Aberdeen would be a continued decline in the price of gold to a point where Simmers and First Uranium reduced their production targets.

    The second commodity risk is iron through the investment in Consolidated Thompson and Labrador. Global steel and iron demand has been strong but could be vulnerable to a recession in OECD countries and any slowdown in spending on construction and infrastructure in emerging markets.

    TIMING

    I believe the most significant event for shareholders will be realization of the value of the Simmers debenture and royalty by 1Q09. Aberdeen will receive a lot of cash for new investments, share repurchase, and hopefully greater awareness of the potential gains from its investment approach.

    Catalyst

    1) Proceeds of approximately $50mm from Simmers/First Uranium debenture and NSR
    2) Performace of portfolio investments
    3) Discount to NAV

    Messages


    SubjectComparison of AAB with EDV
    Entry08/18/2008 08:22 AM
    Memberjohn771
    I think both companies are likely to provide an attractive return over the next year. Some differences:

    Aberdeen provides much better disclosure. You know what they own.

    Aberdeen trades at a larger discount to NAV, although Endeavour's NAV is difficult to calculate.

    Aberdeen has a simpler compensation policy.

    Aberdeen has an attractive portfolio. Endeavour's portfolio is unknown.

    Aberdeen has repurchased shares at a discount more aggressively.

    Endeavour is bigger, better known, more diversified, and has a longer track record.

    Endeavour's portfolio is less risky.


    SubjectRE: Comparison of AAB with EDV
    Entry08/18/2008 09:58 AM
    Membertomahawk990
    Thanks for the post. I wrote up EDV so this is particularly helpful. My main question is on the royalty valuation as that is what will make or break the idea (albiet with limited downside should the royalty sale dissapoint for one reason or another).

    What is the cash operating costs of the project? Do we know the gold price at which they would halt production? Have they had power problems as have others in South Africa? What is the estimated mine life?

    As for the comparison to EDV I would generally agree with all of your comments but would make one point. While EDV's portfolio is not known at the specific stock level, it is in a sense easier to calculate since this is by and large a diversified portfolio of stocks (privates and warrants are under 5%). They provied their valuation policy which is to take discounts when they own too big a percentage of the company or have trading restrictions. So the NAV would appear to be easier to caluclate than the less diversified portfolio consisting of less liquid securities. Also, the compensation policy may be simplier but it is also frought with more conflicts. Nonetheless, would like to know more about EDV portfolio and the discount is larger (warranted in part by less liquidity). Thanks

    SubjectRE: RE: Comparison of AAB with
    Entry08/18/2008 10:51 AM
    Memberjohn771
    Thanks for the questions.

    Simmers projections for the Buffelsfontein mine (covered by the 1% NSR) are a mine life of 20 years with a life of mine average cash operating cost of $464/oz. Simmers has significant future expansion potential. First Uranium projections for Mine Waste Solutions (covered by the 1% NSR) are an operating life of 16 years at an average cash operating cost of $421/oz. Both companies acquired diesel generators to handle the power problems in South Africa. Additional detail is available in the Simmers presentation:

    http://www.simmers.co.za/sjfu/action/media/downloadFile?media_fileid=371

    I will follow up on your EDV comments in that thread.

    SubjectSimmers
    Entry08/18/2008 03:46 PM
    Membergrant387
    Do you have any thoughts on Simmers on a stand alone basis?

    thanks

    SubjectRE: Simmers
    Entry08/18/2008 09:42 PM
    Memberjohn771
    Thanks for your question.

    I like Simmers. The value proposition is fairly straightforward. Simmers owns 81.7mm shares of First Uranium with a market value of C$450mm or R3.3Bn. Simmers has a market cap of R4.1Bn. So the non-FIU assets are valued at only R0.8Bn (Simmers has no corporate level debt). That's a bargain for 2 viable mines with about 7mm ounces of gold reserves and 14mm ounces of gold resource.

    I also think First Uranium is an excellent value at the current price. First Uranium reported quarterly results last week and is essentially on track to generate high profitability in FY2010 (starting April 1, 2009). I think uranium has a lot of potential as a commodity due to significant problems at new mine developments (e.g. Cigar Lake and Dominion), uncertain prospects for Olympic Dam expansion, and financial weakness of the many junior companies that hoped to start production sometime in 2010-2015.

    I believe that Simmers will report quarterly results tomorrow (August 19th). I think the most important thing to look for is progress towards production from the Buffelsfontein No. 5 shaft. This should provide access to high grade ore that will improve Simmers cash flow and generate more ounces subject to Aberdeen's royalty (at a rate of 4.75% until the debenture is repaid 12/31/08).

    Compared to most mining companies Simmers has impressive management reporting. They provide clear objectives for achievement each quarter. The goals for Q109 (ending 6/30/08) are:

    "During Q1 F2009, Simmers also plans to:
    • finalise the position for the Leach Pad site to
    treat the Glynns Lydenburg dump at Sabie
    • submit mining right applications for the
    Hermansburg (Molototse Valley) and DG2
    (Pilgrim’s Trend) heap leach projects, both
    of which are oxide deposits as opposed to
    tailings dams
    • complete the rehabilitation of BGM’ High
    Grade Number 5 Shaft
    • improve the accuracy of predicting future
    mining mix and average grade of available
    face length by enhancing the opening up
    mining control system linked to daily
    production achievements at BGM
    • improve the percentage of pay ground
    mined at BGM
    • publish NI 43-101 technical reports for BGM
    and TGME; of which TGME’s will be at
    preliminary assessment level
    • produce between 37 000 and 39 000
    ounces of gold for the quarter for the Group"

    SubjectRE: RE: Simmers
    Entry08/19/2008 09:23 AM
    Memberjohn771
    Just to follow-up, Simmers quarterly results posted today look satisfactory. High grade production at Buffelsfontein#5 will begin this quarter. Q2 production was in-line with guidance. MD&A comments:

    "Highlights
    • Fatality-free quarter
    • Produced 38 410 ounces of gold for the Group - in line with guidance given in Q4 of
    F2008 - of which 35 199 ounces is attributable to Simmers
    • Revenue of R260 million as compared to R266 million in the previous quarter
    • Phase 1 of BGM’s No. 5 shaft rehabilitation project completed in June 2009 – results will
    flow through from Q2 F2009
    • Production from TGME’s Dukes Hill mine to begin sooner than anticipated
    • On-site gold production commenced at First Uranium’s Ezulwini Mine in July 2008
    o plant commissioned but uranium production delayed by two months to October
    2008 due to late delivery of certain equipment; delay unlikely to impact uranium
    shipping volumes for F2009
    • Refurbishment of both Ezulwini’s main and ventilation shafts on schedule for completion
    by the end of F2009
    • Filed updated independent technical reports on 5 June 2008 for both Ezulwini and MWS
    o Ezulwini’s NPV of $667 million and IRR of 336%
    o MWS NPV of $413 million and IRR of 70%
    3
    • Completed commissioning of MWS’ Phase 1A gold plant expansion to a processing rate
    of 7.6 million tonnes per annum
    o gold production and costs running at planned levels
    o 1.5 MTPA uranium plant and expansion of the gold plant by 7.8 MTPA on
    schedule for completion
    • MWS No.5 tailings dam upgraded to enable deposition rate of 633 000 tonnes of
    material per month
    During Q2 F2009, the Group plans to:
    • Produce between 43 000 and 47 000 ounces of gold, excluding any ounces from
    Ezulwini Mine
    • Hoist approximately 83 300 tonnes of ore at the Ezulwini Mine, of which approximately
    65 500 tonnes would comprise gold and uranium bearing ore from the ME reef horizon
    and approximately 17 800 tonnes would comprise gold bearing ore from the UE reef
    horizon
    • Process approximately 17 200 tonnes of gold bearing-ore through the newly
    commissioned gold plant at the Ezulwini Mine
    • Commission the second 50 000 tonne per month mill module at the Ezulwini Mine during
    September 2008
    • Publish an updated technical report for the Ezulwini Mine
    • Begin producing from the high grade No. 5a sub shaft at BGM
    • Initiate the leach process at TGME’s Elandsdrift heap leach pad (Water Use Licence
    permitting)
    • Initiate mining from Duke’s Hill at TGME"

    http://www.simmers.co.za/sjfu/action/media/downloadFile?media_fileid=432

    SubjectUpdate
    Entry10/14/2008 06:46 PM
    Memberedward965
    John, I noticed this was a holding of RAB special situations fund (so it attracted my interest with their liquidation). Any update you might be able to provide? Thanks in advance

    SubjectRE: Update
    Entry10/16/2008 01:10 PM
    Memberjohn771
    Thanks for the question.

    I remain enthusiastic about Aberdeen, but the past month has been brutal in this sector.

    As feared, RAB did end up being a significant seller of Aberdeen shares. They sold 9.2mm shares in September and still hold 11mm. 6.3mm of those shares were purchased by Aberdeen under its Normal Course Issuer Bid. Hopefully the 3-year lock-up removes the urgent selling pressure.

    As noted in the write-up, Aberdeen's biggest commodity risk is gold and the price of gold rose from USD788 per ounce at the time of the write-up to USD800 today. Aberdeen's largest asset is a royalty on gold produced at Buffelsfontein by First Uranium and Simmers and Jack. The falling value of the South African rand should significantly increase their profit margins and allow them to maximize production. The Rand price of gold hit a new all-time high yesterday over 290000/kg, about 60% higher than the level used in mine planning forecasts by FIU and Simmers. Aberdeen's balance sheet valuation of the debenture/royalty still seems realistic at $48mm, but Aberdeen's share price barely exceeds the value of the $10mm redemption payment to be received on 12/31/08.

    While the royalty value alone makes Aberdeen an attractive investment, the full potential of the portfolio will only be realized through corporate transactions in the portfolio companies. Those deals are harder to arrange in this tough market. Hopefully all of these Central Bank programs will have an impact.

    In its quarterly earnings Aberdeen disclosed an NAV of $1.10 as of 7/31. I estimate the current NAV in range of $0.61-$0.77 using the methodology in the write-up. Some news about portfolio holdings:

    Consolidated Thompson continues to be on track to complete its Quebec iron project. In a recent conference call the company expressed confidence in its ability to raise $100mm in project finance by April 2009. While any financing requirement sounds like a red flag right now, CLM offers a very strong credit profile. The debt would represent only 21% of total project expenditures of $486mm. CLM does not need the cash until April, right now it has over $260mm in net cash and no debt. Net cash significantly exceeds the current market cap of $171mm. Management says that negotiations with lenders have gone well and that mining finance firms such as South African banks have not been severely impacted by the credit squeeze.

    - Central Sun Mining has signed a term sheet for a $22.5mm debt facility to finance completion of its Orosi mill. On a recent conference call the company said due diligence has gone very well and the company expects the agreement to be completed on schedule.

    Magma Metals received a strong expression of confidence when Anglo American acquired 12% of the company last month at a premium price of $0.60 (note Aberdeen purchased its shares at $0.35).

    Avion Resources raised $5mm by selling part of its project to Dynamite Resources, a Bharti/F&M company that held excess cash. With this additional money, Avion is on track to resume production in 1Q09.

    - Largo Resources repaid its convertible loan from Aberdeen.

    I believe that Aberdeen is incredibly cheap right here, but this is also an extraordinary time in the junior mining sector. It's not hard to find exploration/development companies with viable projects trading for less than their cash on hand and companies with current production trading for less than 5X conservative EPS estimates.
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