RE: SST Q4 financialsHy tooclassy,
You are right when you say that the announcement of this deal has attracted attention to SST from a valuation point of view (and this is something SST was lacking) but, as far as management is concerned, we don't know if the deal has been solicited by management or it's been a SLW initiative.
So, we don't know if management has been so smart as you are implying in your reasoning.
After all, it's SLW (not SST) that first came up with the idea of a company based on silver streams that looks like a warrant on silver with a strike price of $3.9. SST just copied the model and only because SLW, at that time, didn't want to strike a deal with Capstone for the Cozamin mine.
I give you some more hints.
First, why you want to sell a company at the bottom (certainly not the top) of the market, especially if you don't have financial problems?
Second, why don't you want to wait until after the release of first quarter results that include revenue from Minto? (this is a point that suggests the deal has been proposed by SLW, not by SST).
Third, why don't you want to start a buyback program (we have cash flow to do that) which is by far the best way to use cash when the stock price is so low?
I would love to see SST buying back shares at $1, and if the stock price were to remain at $1 for one year I would love even more (this means more and more shares can be bought back).
Anyway, we are now all on this boat.
The best we can do now is to write (rational) letters to management questioning the deal. They will get a sense of how large is the opposition to the terms of the deal, and eventually have SLW sweeten the offer before the vote of shareholders.
I would add one last thought.
For those shareholders who fear SLW would not be interested to pay more, let's see how the deal will benefit SLW.
I think SLW is sensing there are a large number of opportunities to strike good deals out there in this environment of depressed base metal prices.
There is probably the unique opportunity to acquire streams from robust low cash cost mines that experience difficulties with financing right now.
But SLW does not have very much room on its balance sheet to buy silver streams, and their share price is also somewhat depressed (even if not so much as SST's).
They recently had a limited PP but it's not smart to raise a lot of money selling shares at currently depressed prices.
And here comes the beaty of this deal for SLW.
Post deal, SLW will have significantly more CF today (not in 2010-2011 after Penasquito is at steady state) and this will let them expand debt and also get a re-rating from analysts essentially because the 2010-2011 growth will be anticipated to 2009. A re-rating is important because a share price lift will make sense of raising cash through PP.
So, post deal, SLW will have significantly more capacity to strike new deals, which is the right thing to do in this environment (not selling as SST is trying to do of itself, but buying).
This is why I certainly like to become a shareholder of SLW (after deal). But the point is the price paid is not right, it's not even fair.