Coal sector M&A activity has picked up this year, with no end in sight. Rio Tinto (RIO) made a proactive acquisition when it bought an emerging coking coal player in Mozambique and it recently tendered for the 25% of shares of Australia's Coal & Allied Industries that it doesn't already own. Anglo American (AAUKF.PK) and BHP (BHP) are both reportedly looking at Walter Energy (WLT), (stock up 21% on Sept. 7th). Alpha Natural Resources (ANR) acquired Massey Energy, Arch Coal (ACI) acquired Intl. Coal. Vale and Tata Steel have great emerging coal market exposure in Mozambique. Glencore (GLCNF.PK) is stalking a south African coal producer named Optimium Coal. Peabody Energy (BTU) and Mittal (MT) are buying Macarthur coal. Peabody also won a coveted spot on Mongolia's Tavan Tologi development team. Please see my thoughts on Tavan Tolgoi here and here.
One company that has been noticeably absent from this game is Teck Resources (TCK). To be fair, Teck is already the second largest producer of premium hard coking coal in the world. But, Teck will not remain # 2 if the M&A dance continues without them. Alpha Natural Resources is catching up to Teck, and a combined Anglo American and Walter Energy would be a competitive threat. Teck has all of its coal assets in one Canadian basket, so the company would greatly benefit from some diversification.
The emerging coking coal exporting countries of Mozambique and Mongolia will increasingly be key drivers of supply. As was stated in the opening paragraph, some companies have already set down roots in these two frontier countries. However, Teck remains 100% exposed to Canada. Don't get me wrong, their Canadian coal operations are very good, but having all of one's eggs in one basket is risky. Seeing as there are already two dominant emerging coking coal players in Mozambique, Rio Tinto and Vale (VALE), Teck would have a hard time establishing a foothold in that country. However, in Mongolia one of the two dominant coal producers is a prime takeout candidate for a company like Teck. That company is named SouthGobi Resources (SGQRF.PK).
In part due to my copious comments and analysis on SA, I have recently been retained by SouthGobi Resources as a consultant. In my frequent talks with CEO Alex Molynuex, I continue to believe that the Company is a prime takeout target. Alex said on his 1st quarter earnings conference call, and again in an interview that I conducted with him, that 57% shareholder Ivanhoe Mines (IVN) is speaking with interested parties.
SouthGobi Resources, the Canadian-listed Mongolian coal producer, announced this week that it is producing coal at an annual rate of 5.3mm metric tonnes and that production continues to ramp up. In CY 2012, SGQ will mine and sell approximately 7mm tonnes of coal, most of it coking coal. This level of production makes SGQ one of the two dominant coal producers in Mongolia. Here is my instablog on SGQ's press release.
While much has been written about Mongolia's massive Tavan Tolgoi coking coal deposit, market participants appear largely unaware that SGQ's production profile will dwarf that of the 3 recently announced winning mining groups. For example, Tavan Tolgoi is expected to be producing 15mm metric tonnes of coal, about 2/3 of it coking coal, by 2016. Of that amount, Peabody Energy will control 3.6mm tonnes with its respective 24% stake in the project.
By 2016, SouthGobi will be producing 12mm-13mm tonnes of coking coal, including 3mm tonnes of premium hard coking coal. As such, SGQ will remain one of the top two producers in Mongolia for many years to come. As a dominant producer in a frontier country that many global miners, steel companies and commodity traders like Glencore (GLCNF.PK) want to get access to, SGQ is a prime takeout candidate. To put SouthGobi's production in perspective, within 5 years it will be exporting roughly half of what Teck currently produces. Combined, Teck and SGQ would be producing greater than 40mm tonnes of coking coal, keeping Teck comfortably in second place behind the BHP-Mitsubishi Alliance.
I believe that within 6-12 months, SGQ will be taken out. The reason for my conviction is twofold. First, like Mongolia, Mozambique is an emerging coking coal exporting country with two dominant coking coal companies. There, Rio Tinto just acquired one of the two dominant players, Riversdale Mining, for a hefty 8.5x 2014 EV/EBITDA multiple. The other major player in Mozambique is global mining giant Vale. Second, the company is known to be for sale. Interested parties are already talking to 57% majority owner Ivanhoe Mines. Teck should take a close look at SouthGobi. If they don't acquire it, a competitor will, leaving few options for Teck to gain access to Mongolia.
Just as many miners are interested in getting into Mozambique, many are also interested in getting a foothold in Mongolia. In fact, Mongolia's coal exports are already running at greater than 20mm tonnes per year, while Mozambique is only beginning to export coal in 2h 2011. Mozambique is thousands of kms from China, while SouthGobi is just 45km from the Chinese border. Coal from SouthGobi's mines arrive at Chinese steel mills faster and more reliably than coal from, say, Canada, Australia or Africa.
SGQ is in the early stages of substantial organic earnings and production volume growth. Within 3 years, the company will be exporting at a run-rate of 10mm tonnes of coking coal and generating a run-rate of up to $600mm in EBITDA. Compared to the 8.5x multiple of 2014 EBITDA that Rio Tinto just paid for Riversdale Mining, SGQ is trading at less than half of that. Sooner or later, perhaps when the world realizes how slow the ramp up will be at Mongolia's Tavan Tolgoi coking coal deposit, potential suitors will recognize not only how cheap SGQ is, but also its importance as a major strategic asset serving China's every growing needs.
SGQ is the perfect hedge for the global seaborne coking coal markets. If (when) Australia's coking coal mines get inundated by massive flooding, as they have twice in the past 4 years, SouthGobi's proximity to China becomes even more valuable. Strikes, transportation bottlenecks and severe winter weather in Canada and other coking coal exporting countries represent further headwinds for global supply that is mitigated by SGQ's production on China's doorstep.
Finally, SGQ's enterprise value of about $1.6 billion makes it easily digestible. Given the proven ability of the global miners to issue debt with fixed coupons of 4%-5% these days, SGQ is a very cheap option on the continued tightness of the coking coal markets. I think that any of the following companies could be interested in acquiring SGQ; BHP, VALE, Anglo American, Xstrata (XSRAF.PK), Glencore, Noble Group (NOBGF.PK), ArcelorMittal, New World Resources (NWCSF.PK), Banpu (BNPJF.PK), Exxaro (EXXAF.PK), Walter Energy, Fortescue Metals, BTU or Arch Coal (ACI).
Disclosure: I am long SGQRF.PK, TCK.
Additional disclosure: I am an independent consultant for SGQ.
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Comments
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remember mongolia is at present limited by lack of railroads.
> jack11 Sep 2011, 11:04 AMReplyLike3 -
Railroads are being built or being planned.11 Sep 2011, 07:53 PMReplyLike2
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Yes, but Southgobi Resources is only 45km from the Chinese border. They are already producing and exporting at a rate of 5.3mm tonnes per year. By the end of next year, a new toll road will be in place that will have at least 20mm tonnes of coal transportation capacity.
The dozen or more private and public emerging coal producers in Mongolia will, in many cases, need new rail lines to be viable. SouthGobi does not.11 Sep 2011, 12:58 PMReplyLike3 -
Why is SouthGobi not making any money this year if it's producing over 5mm tons of coal?11 Sep 2011, 11:49 PMReplyLike3
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why isn't southgobi making any money?11 Sep 2011, 11:49 PMReplyLike2
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I am currently living UB agree with most of you arguments. What's the other side of the story, why is IVN selling, and why has it been overlooked? Any political complications?12 Sep 2011, 05:54 AMReplyLike4
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SGQ is still in the early stages of earnings growth. Even though the company's cash costs are very low, averaging in the low $20's per tonne, SGQ's average sale price (ASP) is only $56 per tonne. Assuming that in 2012 SGQ had the same ASP and cash cost per tonne, the company would generate approximately $175mm EBITDA on 7mm tonnes sold.
The reason why the company currently isn't earning money is that the ASP over the trailing 12 months have been in the $30's-$40's
per tonne and the volumes sold were less. The ASP currently at $56 per tonne begs the question, does this mean that SGQ's coal quality is poor? The company explains that their, sized / screened / dry & wet-washed coal is a solid semi-soft coking coal. However, the company is not YET dry & wet-washing their coal, so they are selling higher ash raw semi-soft coal.
This raw coal sells at a substantial discount to the price that dry & wet-washed coal sells for. SGQ will be dry & wet-washing their coal in 1q 2012. In addition, by 2014, the company's new Soumber mine will be ramping up to 3mm tonnes of incremental coking coal. This coal is premium hard coking coal that will enjoy much higher margins than the company's existing coal operations.
To sum it up then, from 2011 to 2014 all of the following factors will greatly enhance earnings. 1) higher volumes-- from about 4mm tonnes in 2011 to 10mm tonnes in 2014. 2) higher quality mix of coal sold-- from 4mm tonnes of raw coal in 2011 to 10mm tonnes of washed semi-soft (7mm tonnes semi-soft & 3mm tonnes premium hard) coking coal. 3) margin capture-- margins will grow due to the higher overall quality mix of the coal sold and the further processing of the coal via dry & wet-washing. In addition, margins will be enhanced by SGQ selling an increasing amount of coal directly to end-users, thereby cutting out the middlemen AND by the company realizing transportation efficiencies from utilizing newly opened rail lines in China.
On paper, there is a clear path to much stronger earnings. The company needs to execute on their plan to reach the next stage. Some would say that execution to date has been spotty or uneven. I would argue that in most key respects, the company is on track. ASP is rising rapidly, costs are relatively in-line and volumes are taking off. I think that the next few quarters will be telling. If SGQ can generate a reasonable amount of EBITDA, then investors will have better visibility into 2012-13.12 Sep 2011, 08:52 AMReplyLike3 -
I guess I am in the camp that earnings growth has been, "spotty or uneven." We will see what 2nd half '11 brings.12 Sep 2011, 08:59 AMReplyLike2
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12 Sep 2011, 03:11 PMReplyLike2
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Peter,
Great analysis of the company! SouthGobi shipped at an 6 mm MT annualized rate in August. I have visited SouthGobi's operations and have to give them props for execution. The arm chair investor has no clue of what it takes to bring a greenfield project to fruition - let alone one in Mongolia and in the South Gobi Desert!
Your are correct that no railroad is needed. The distance to the Chinese border is only 45 KM and the on-road trucks haul about 100 MT per trip. A rail line would probably bring some efficiencies, but it certainly is not a deal-breaker. When you see hundreds of trucks waiting to load, it is not unlike seeing unit trains at a coal tipple. On the other side of the border is a brand-spanking new rail line whose only reason for being is to bring Mongolian coal to end-users within China.
I agree there is a big difference between SGQ and the developers of Tavan Tolgoi. I'd rather have 6 mm MT/yr in the hand, than 15 mm MT in the bush! If I am not mistaken, Tavan Tolgoi is about 250 KM from the border and is not feasible without a rail line. - Steve Doyle [Disclosure: I am long Southgobi]12 Sep 2011, 06:30 PMReplyLike4 -
seekingalpha.com/insta...13 Sep 2011, 08:44 AMReplyLike2 -
I know Steve and Ted and Diana-- hardest working coal cops out there.
Steve, do you think that SGQRF is a likely takeover candidate the way that peter epstien does? thanks! keep up the good work!13 Sep 2011, 11:10 AMReplyLike3 -
Here's the story....
Mongolia's large mining deal with int'l miners rejected
2011-09-13 15:14:12.336 GMT
ULAN BATOR, Sep 13, 2011 (Xinhua via COMTEX) -- A
tentative investment agreement on giant coking coal deposit
Tavan Tolgoi in Mongolia's South Gobi region has been rejected
by the National Security Council, Mongolian President Tsakhia
Elbegdorj was quoted as saying by local media on Tuesday.
The council, comprised of the president, prime minister
and speaker of the parliament, rejected last Friday the draft
investment agreement with international miners on stake
ownership and production of the deposit.
Early in July, the Mongolian government reached a
tentative deal, under which China's Shenhua Energy Company,
U.S. Peabody Energy Corporation and a Russian-Mongolian
consortium would respectively hold 40 percent, 24 percent and
36 percent of the shares.
However, Elbegdorj said the deal did not meet requirements
of the council nor was it compliant with Mongolian laws and
regulations, thus was submitted to the National Security
Council on July 22 for review.
Currently, the giant coking coal deposit is split into
five separate sections, and four local companies own mining
licenses in the deposit.
Local media assumed the splitting of the large deposit
into smaller parts to be a cause for the rejection and reported
the government is discussing with two licensed private
companies to consolidate their working area with state-owned
Erdenes MGL company.
It is not clear whether the Mongolian government will re-
negotiate with the international bidders for the development of
West Tsankhi area of the deposit with an estimated reserve of
1.2 billion tons -- mostly coking coal used for steelmaking.
The mine is capable of producing 15 million tons of coal
annually for more than 30 years, which is believed to be able
to boost Mongolia's economy.
Copyright 2011 XINHUA NEWS AGENCY13 Sep 2011, 02:53 PMReplyLike2 -
"The council, comprised of the president, prime minister
and speaker of the parliament"...
...so three guys get to decide if a foreign company can take-over one of their domestic companies?
Not exactly a reason to get long SouthGobi.22 Sep 2011, 05:13 PMReplyLike0 -
lots of opportunity for corruption here.
> jack23 Sep 2011, 08:23 AMReplyLike0 -
seekingalpha.com/insta...17 Sep 2011, 12:01 PMReplyLike1 -
http://seekingalpha.co...18 Sep 2011, 11:01 AMReplyLike1 -
Peter, I like your thinking on Mongolia being in that part of the world where coal demand will outpace other regions, but SouthGobi is not just "Canadian-listed". They floated shares on 7 or so exchanges, which makes the valuation story much more cloudy that how you present it above. Can you address this for us?
For US consolidation, WLT is a $4bil market cap still on about $2bil of revs. Eventhough PCX is struggling to be profitable, consistently, they are a market cap of $840mil today, also on $2bil of revs. As vulgar of an analysis this is (I don't have time to go into much detail, but I have been following these stocks for years), I would say that it is very likely that someone takes out PCX if their market cap stays at these levels. WLT is not as cheap as everyone thinks they are. They have +$2bil of long-term debt. Ouch!!! PCX only has ~$430mil of long-term debt.
Some guys are coming out and calling WLT cheap. I would not say this. I would say PCX is much more towards the cheap end, assuming new management could twist a few operational bottlenecks to move the needle on short-term profitibility more.22 Sep 2011, 02:48 PMReplyLike2 -
Peter, the canadian float of SouthGobi today is at a valuation of $1.3bil. Please address what the valuation of the company is based on the other 6 exchanges on which they raised equity. Like many of the chinese solar companies who have listed on many exchanges, the valuation discussion is not as straightforward as people want to believe.22 Sep 2011, 02:53 PMReplyLike2
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SouthGobi has been buying back shares in the open market almost every day. They buy both the Canadian shares and the Hong Kong shares. Both exchanges are notified of the company's issued shares all the time.25 Sep 2011, 06:08 PMReplyLike3 -
Thank you for correcting me, Peter.
How many shares did SouthGobi float in Hong Kong? The Canadian float itself is at a market cap of $1.4bil today.27 Sep 2011, 01:22 PMReplyLike0 -
The up to the minute US$ market cap is $1.27B.27 Sep 2011, 01:48 PMReplyLike3 -
Thanks Peter. You make a strong public relations effort above and your logic is reasonable.
However, I will list my reasons for not investing in SouthGobi:
1. I don't invest in companies that have a history of raising equity (again and again) to finance future growth. (Float history is 16mil shares in 2006, 51mil shares in 2007, 128mil shares in 2008, 133mil in 2009, 176mil in 2010, and 182mil in 2011). That is too much dilution for me. It is a pattern that I do not like.
2. SouthGobi is a promise for the future. They do not have much history of executing. They appear to be on their way of breaking $100mil of revs in 2011, but the future already awards them a $1.3bil market cap based simply on mining a natural resource. They are selling cheaper, dirtier coal at lower prices, yielding lower margins. Why not invest in a more stable coal name that plays in higher margin product? There are many coal stocks on sale right now. Why roll the dice on one in Mongolia where 3 guys get to decide on a take-out happening?
3. SouthGobi is DESPERATE for investor attention. So much so, they list on 7 exchanges and they hire consultants to give them PR exposure. What they have currently is a story for the future. It is therefore a story stock until they show a) a track-record of not raising more equity to finance further capital expenditures, b) a pattern of executing at profitable margins, c) big institutions getting involved (right now, they have less than 1% institutional ownership, and d) showing a pattern of execution versus pumping a story.
It appears to me that there are good reasons that SouthGobi has no institutional support. Until SouthGobi gets some institutional support, this looks like a story stock.
Peter, you are writing a good story. Steven Doyle might be considered an expert in many circles, but he made his first comment on SeekingAlpha for your story, so this all seems a bit scripted. It is too transparent to me that SouthGobi is desperate to create some investor demand, probably because they are going to float even more shares. The lack of institutional investor demand is a big red flag, not only for me, but for more competent investors.
I think the big thing you will need to answer in order to convince investors is why a company that has been public since January 2006 still has no institutional ownership (literally, none at all). All of the really smart institutional guys won't touch it, but I should?27 Sep 2011, 04:01 PMReplyLike3 -
I address your points 1 at a time. Cracker said,
"I don't invest in companies that have a history of raising equity (again and again) to finance future growth. (Float history is 16mil shares in 2006, 51mil shares in 2007, 128mil shares in 2008, 133mil in 2009, 176mil in 2010, and 182mil in 2011). That is too much dilution for me. It is a pattern that I do not like."
You said "float history," this is misleading. The company did not float the # of shares you listed each year. What you listed was the total # of shares at the end of each year, which is totally different. In terms of prior equity raises, they are irrelevant IF the company in question is not going to issue shares again. Why irrelevant? Because all that matters is the valuation of the company today and looking forward, not looking back. One compares the valuation of the coal assets and future cash flow to the current enterprise value of the company and makes an investment decision. SGQ does not need to issue shares again, (they have $312mm of cash and liquid securities at 6/30/11), UNLESS in conjunction with an acquisition. In fact, SGQ has been buying back shares almost everyday for a few months now.
Cracker said,
"SouthGobi is a promise for the future. They do not have much history of executing. They appear to be on their way of breaking $100mil of revs in 2011, but the future already awards them a $1.3bil market cap based simply on mining a natural resource. They are selling cheaper, dirtier coal at lower prices, yielding lower margins. Why not invest in a more stable coal name that plays in higher margin product? There are many coal stocks on sale right now. Why roll the dice on one in Mongolia where 3 guys get to decide on a take-out happening?"
Ok, where do I start-- Yes, I agree with you. SouthGobi is a promise on the future. A promise that if all goes roughly according to plan, then they will remain a dominant exporter of coal from Mongolia to China. The company is a dominant player because it is producing and exporting at a run-rate of 5mm metric tonnes. Mongolian Mining, (975.HK) is the only other Mongolian coal producer selling that much coal.
Cracker said, SGQ is awarded a $1.3b market cap simply for, "mining a natural resource." Gold companies mine natural resources, so do oil companies and potash companies and coal companies. If one doesn't think that mining a natural resource is a potentially valuable business model, then one should not invest in a coal company.
Cracker says that SGQ is selling cheaper dirtier coal at lower prices, yielding lower margins. TRUE. We agree on that. If SGQ's plan was to continue mining 5mm or more tonnes of cheap, dirty, low-margin coal, then I wouldn't recommend the stock. However, the plan is to wash the dirty, cheap coal to make it less dirty and less cheap. Washing the coal reduces the ash and sulfur, making the coal more valuable. Washed coal commands a higher selling price, which means higher margins. The game plan is very straight forward. Execution and the timing of getting things done is of course key. While the CEO readily admits that there have been setbacks from time to time, the company is slowly but surely moving in the right direction.
Cracker said, why roll the dice on SGQ, there are many stocks on sale now. TRUE. We agree. When I started posting on SA about SGQ, the huge sell-off that we have seen in natural resource stocks had barely begun. Now, there are dozens of coal stocks to choose from that are on sale. Some will definitely end up being better investments that SGQ is right now. Some will get acquired sooner than SGQ. I'm an expert on SGQ, not every coal stock, and I think it's very compelling at $7 bucks per share.
I also thought it was compelling at $11.0-$11.5 per share So my advice to buy the stock has been dead wrong from a technical or trading perspective. To anyone who bought the stock at $11 or so, it may take a long time for that investment to pay off, and the ultimate return on that specific investment may not be that exciting compared to investments that can be made today. But, the same can be said for almost every other natural resource stock that was bought 2-3 months ago.
Cracker asks, why not invest in a more stable coal company with higher margin product? My answer, coal companies sell coal, that is their product. SGQ will have a strong margin when they reach a run-rate of 10mm tonnes of coking coal exports within 3 years. Again, that's the plan, if SGQ mgmt doesn't execute, than an investment in this company will be a bad one.
The rest of Cracker's post focuses on two things. First, the company must be desperate to list on multiple exchanges. This is nonsense. According to Bloomberg, Rio Tinto has 66 stock tickers, it's listed on dozens of exchanges. I thought we addressed this topic before. The final point of Cracker's is about the institutions not owning SGQ. TRUE.
However, there is one simple reason why they don't own SGQ. The float of this stock is low. 70% of the outstanding shares are owned by just 2 entities. 57% by Ivanhoe Mines and 13% by CIC, the giant Chinese sovereign wealth fund. Ivanhoe Mines spun out SGQ years ago. The effective float has been poor for years. A big reason for issuing shares in Hong Kong in May, 2010 was to improve the public float, to get the trading volume of the shares up.
That effort has not been entirely successful. So, of all Cracker's points, this is the most relevant and important-- not only that institutions don't own the stock, but that in many cases they will never own the stock because of the float. Importantly though, retail investors like you and me and SA readers CAN buy the stock and benefit from a take out. I am fairly confident that NOT TOO MANY readers of my SGQ posts actually bought SGQ shares. Good for them!
I like the stock more at $7 per share than I did at $8, $9, $10 and $11. The stock has sold off massively, but the fundamentals specific to SGQ have not changed.27 Sep 2011, 08:12 PMReplyLike5 -
Thank you for straightening out my points Peter. You are very fair.
I would simply point out that dilution is not an "irrelevant" matter in shareholder value. I like to hear that they are buying back shares. However, history suggests they have no problem with diluting further down the road. Every year, more shares are outstanding. People want to see this trend reverse.
30% of 182mil shares is still a lot of shares. This is no excuse for not one other single institution to step in and buy. Something is not quite right.
Here are some Price/Sales ratios for some well known coal stocks that do revs over $1bil per year:
BTU at 1.41
PCX at 0.42
WLT at 2.08
ANFGF at 2.75
ANR at 1.02
ACI at 0.99
But SGQ trades at 10.6!!!
This illustrates that as an early stage coal company grows, and has to endure capital expenditures, it will also endure operational strains that push its price/sales down. This implies that even if SGQ grows revenues dramatically, this does not mean that its stock price goes up dramatically with it.
Peter, I am sure you could make more counterpoints. I have made my points, so let me make a call here.
SGQ will continue to grow revs. It will also continue to face challenges around attempting to grow or maintain margins while confronting capital expenditures like every other coal company in history (e.g. it will not be cheaper to wash the coal to sell it for more money, will they do this well? we don't know). SGQ is still enjoying a very rich valuation at $6.63 a share today. I see no reason it can't go down to $3 per share and near the same Price/Sales ratios that all of the other big coal names have.
SGQ hits $3 sometime in the next 12 months after the company ends their repurchase efforts. That is my call.28 Sep 2011, 02:10 PMReplyLike4 -
28 Sep 2011, 02:38 PMReplyLike1
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http://seekingalpha.co...29 Sep 2011, 05:11 AMReplyLike2 -
From Jon Springer's instablog Nov 21: "SouthGobi Resources (SGQRF.PK) CEO Alex Molyneux purchased 40,000 shares on November 16, 2011:" http://bit.ly/uJhiX8
I think this is signal that now is a good time to buy.28 Nov 2011, 03:02 PMReplyLike3 -
Kshanti,
Perhaps you can help me understand the SouthGobi purchase price of these 40,000 shares. My read from the disclosure form you linked is that the average PPS was 21.44 HKD. Using the approximate exchange rate on 11/16 of 7.6 HKD per $1CAD -- it appears to me that he paid an equivalent average of $2.82CAD per share on 11/16 -- even though the shares closed @ $7.66CAD per share in Canada on that date (today the shares are $6.70 CAD). Was he likely purchasing convertible warrants with a lower strike price than market price or am I missing something else? A "good time to buy" would obviously look different with an outright purchase versus a warrant conversion.
Thanks in advance.
mj29 Nov 2011, 06:57 AMReplyLike4 -
Mercy, You are right about the timing and perspective difference between direct market price versus an option exercise. I cannot explain the price in other way than the CEO using options.
I followed intuition and bought more Southgobi on Monday. General opinion seems to be that insider buys tend to correlate with share price growth.30 Nov 2011, 11:37 AMReplyLike3 -
Mercy, good question. When a company allows execs to purchase options that have a strike price that is more than 60% below the market price, it indicates that the company has no problem using it's public float as a currency to reward employees, rather than how options should be used, as a motivational tool to increase the stock price and shareholder value.
This is yet another indication of how this company likes to manage their float, for the benefit of the employees, more than the benefit of shareholders.13 Dec 2011, 06:41 PMReplyLike2 -
Also...Mercy,
These may also be RSUs, meant to reward the employee, and not incent him/her (like options usually try to accomplish).
Either way, it is not a good thing for the other shareholders. The company is using its public float as a currency to reward the high ranking employees.13 Dec 2011, 06:53 PMReplyLike2 -
28 Nov 2011, 11:41 PMReplyLike1
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Peter, please share with us why SouthGobi was left to be a separate public subsidiary of Ivanhoe? Wouldn't Ivanhoe want to own SouthGobi wholly and outright, if SouthGobi was supposed to be thought of as being accretive to earnings or cash flow in the near future?
Offering options at a strike price which is a 60% discount to the market price is not an indication that the share price is going up, nor is it a motivator for that employee to help make the share price go up.
Don't be long this company. Be short.
This thing goes to $3 or lower by September 2012. SouthGobi should not be trading above all of the other coal company multiples. Read all of my posts on SouthGobi.13 Dec 2011, 06:50 PMReplyLike3 -
SouthGobi's status also will be effected by an arbitrator ruling in favor of Rio Tinto in the Ivanhoe-Rio Tinto arbitration on December 12, 2011. This article by Bloomberg notes that an agreement preventing Rio Tinto from making a hostile bid for Ivanhoe Mines now expires January 18: http://buswk.co/twdiAn
- Or as Reuters titles it, Rio Tinto Wins Fight Against Ivanhoe Poison Pill: http://reut.rs/tzZgxj
- Most thorough is Canada’s Globe And Mail: http://bit.ly/t7DB7z
- And the Sydney Morning Herald is good as well: http://bit.ly/uMpMPc13 Dec 2011, 07:38 PMReplyLike3 -
He paid CAD$ 21.44 for IVN shares....it's that simple.16 Dec 2011, 10:46 PMReplyLike1 -
Thanks Peter. You got us. I got caught in one person giving misinformation and drawing the wrong conclusion on that misinformation, but stilll...
...please share with us why SouthGobi was left to be a separate public subsidiary of Ivanhoe. Wouldn't Ivanhoe want to swallow SouthGobi if SouthGobi was supposed to be thought of as being accretive to earnings or cash flow in the near future? Why is SouthGobi run as separate public subsidiary?20 Dec 2011, 05:44 PMReplyLike2 -
The real question for me then is why RIO doesn't care about SouthGobi given my strong feelings on the fundamentals for SGQ's top 2 position in Mongolia's coal exports. The answer I get to this is that RIO is 100% a seaborne coal player and that a land-based exporter of Mongolian coal to China simply doesn't fit RIO's business model. I find this answer to be unsatisfying, but that is what I'm told....21 Dec 2011, 08:22 AMReplyLike4 -
Good data. Makes sense. Thanks Peter!22 Dec 2011, 03:21 AMReplyLike1
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Thanks Peter, a fair response.
I am still skeptical though. I have until September 2012 for this thing to get to $3. I am sticking by it based on my logic around comparative coal multiples and what usually happens as smaller coal companies try to scale.
