GREY:GQMNF - Post by User
Post by
shakerman640on Jun 12, 2015 12:26pm
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Post# 23824769
M Partners: Hold rating and $1.20 target price for GQM
M Partners: Hold rating and $1.20 target price for GQMAccording to M Partners:
https://personal.crocodoc.com/nGoGqjr
GOLDEN QUEEN MINING CO.
Rating: HOLD (was BUY)
New 12-Month Target: C$1.20
Old 12-Month Target: C$1.60
NEW DEBT FUNDS JV CONTRIBUTION BUT DOESN’T COME CHEAP
Expanded loan should fund next JV contribution. Golden Queen announced it has entered into an amended loan agreement with members of the Clay family to increase its $12.5MM loan to $37.5MM. As part of the amended agreement the lenders will receive fees of $1.5MM in cash and 10 million five-year warrants with a strike price of $0.95 per share. As well, the term of the loan has been extended to December 8, 2016 and the loan continues to bear an annual interest rate of 10%. Of note, fully diluted, the Clay family owns ~40% of the public company. While the loan is expensive when incorporating the warrants and fees, it allows Golden Queen to make its next US$12.5MM JV contribution and maintain its 50% interest in the Soledad Mountain project.
Financing more expensive than expected; impacting estimates. To fund the company’s next JV contribution, we had assumed a C$15MM equity raise (at C$1.25/share) and a new $20MM debt facility at 8%. The combination of the modestly higher rate on the expanded debt facility, the sizeable arranging fee and the dilutive in-the-money warrants negatively impacted our NAVPS estimate and target.
Company has enough cash for now; balance sheet likely tight during commissioning. Management believes the project continues to be on time and budget and the company expects commissioning to start in Q4 2015. We model commissioning starting in Q1 2016. While our current estimates assume no additional outside capital is required, we expect the company’s cash balance to bottom out at $1.2MM in Q2 2016 during the late stages of commissioning, suggesting the company may need additional funding. We note the company could increase balance sheet flexibility by repaying the C$10MM convertible loan due in July with shares rather than the current plan to repay it with cash.
We are moving to a HOLD rating (was BUY) and are reducing our 12-month target price to C$1.20 per share (was C$1.60). Our target price is based on a 0.90x (was 1.00x) multiple applied to our NAVPS5% estimate of C$1.32 (was C$1.62). Our NAVPS estimate has decreased as a result of the higher than expected cost of the new loan. As well, we have reduced our target multiple to reflect the likely potential need for additional capital. Golden Queen currently trades at 0.74x our NAVPS estimate versus development peers at 0.39x and North American producers at 0.62x.
POTENTIAL CATALYSTS AND EVENTS
Q1 2016 – Soledad Mountain commissioning
Q3 2016 – Commercial production at Soledad Mountain