MinesOnline.com Reviews Sandfire’s Proposed Acquisition of MOD

MinesOnline.com Reviews Sandfire’s Proposed Acquisition of MOD

On 21 January 2019, MOD Resources Limited (MOD) (ASX:MOD) announced1 that it has received an unsolicited, non-binding, indicative and conditional proposal by Sandfire Resources NL (Sandfire) (ASX:SFR) in which Sandfire proposed to acquire all of the outstanding common shares of MOD via an all scrip transaction, valuing MOD at A$0.38 per share (the Offer). The proposed offer is priced at a 73% premium to MOD’s closing price of A$0.22 per share on Friday 18 January 2019 and a 52% premium to MOD’s 30 day VWAP prior to the offer of A$0.25 per share.

MOD’s primary asset is its 100% owned T3 Copper Project (T3), located in Botswana. Currently, MOD is undertaking a Feasibility Study on T3 which is due for completion in March 2019, and in July 2018 reported an updated Mineral Resource at T3 of 60.2Mt @ 0.98% Cu and 13.9g/t Ag. MOD also holds other copper/silver exploration projects in Botswana and 80% of the Sam Creek Gold Project, located in New Zealand.

 

Acquisition Metric and Resource Inventory Analysis

Due to the near complete Feasibility Study on T3, PCF has attributed MOD Developer status. Based on the Offer’s Enterprise Value (EV) of US$58m2 (adjusted for net cash of US$9m), MinesOnline.com has calculated an EV/Resource multiple for the Offer of US$0.028/lb of copper equivalent. MinesOnline.com’s usual analysis is applied to project or asset level transactions, however as the Offer is for a corporate transaction, it is appropriate to apply a control premium of 40%3.

MinesOnline.com has adjusted its 1 and 3 year normalised4 copper average5 metrics to include this control premium of 40% to compare with the Offer metric, set out in the table below.

Based on the adjusted transaction metrics, the Offer is at a 42% discount to the 1 year adjusted normalised average metric and a 3% discount to the 3 year adjusted normalised average metric.

MinesOnline.com has also evaluated the Offer against select copper Developer peer EV/Resource multiples, as set out in the graph below. The average EV/Resource multiple of these select copper Developers is US$0.036/lb.

Since quoted market prices per share reflect the value to minority interest shareholders, it is also appropriate to apply a control premium. MinesOnline.com has adjusted the average peer EV/Resource multiples to include the same control premium of 40% to compare with the Offer metric, set out in the table below.

Based on adjusted peer multiples, the Offer is at a 44% discount to the adjusted average peer multiple among select copper Developers.

In summary, in comparison to the MinesOnline.com 1 year adjusted normalised average transaction metric and the adjusted average peer multiple the Offer is at a 42% and 44% discount respectively, whilst in comparison to the 3 year adjusted normalised average transaction metric the Offer is at a discount of 3%.

 

1 See MOD’s announcement here.
2 Based on AUD/USD of 0.7048 as at 31 December 2018.
Control premium of 40% based on PCF’s analysis.
4 Average metric normalised for 31 December 2018 copper price of US$2.70/lb.
Average metrics for 1 and 3 year averages are based off 5 and 9 copper Development transactions respectively.