Buyout Values: Oromin vs. SemafoIf you’re placing bets on who may be the next company to be snapped up, Desjardins Securities Inc. analyst Brian Christie suggests considering Semafo Inc. (SMF-T9.540.718.04%), which this week reported earnings and cash flow in line with Street expectations.
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A key reason: the stock has sold off significantly since late December, when it peaked at just above $14. It’s trading a little below $9 today.
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The company reiterated its 2011 guidance this week, forecasting production of 238,000 to 263,000 ounces at a cash cost of $540-580 an ounce. Meanwhile, it has allocated significant capital to exploring its Mana and Samira Hill projects in west Africa. “This work should result in increased reserves and resources and strong news flow through the year,” noted Mr.Christie.
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“We still believe that exploration will ultimately support our future expanded production scenario. Given the recent selloff, we also believe that Semafo could ultimately be a takeover candidate,” said Mr. Christie, who rates the stock a “buy” with a price target of $14.75.
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CIBC World Markets Inc. analyst Cosmos Chiu agrees that the stock is undervalued. Semafo now trades at a multiple of 1.6 times price-to-net-asset value, lower than the group average of 1.7 times, and its lowest multiple in over a year.
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“We believe SMF shares should not be trading at a discount to the group,” said Mr. Chiu, who believes the company’s production ramp-up to an annual rate of 450,000 ounces by 2014 is achievable.
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He rates the stock as a “sector out performer” with a price target of $18.50.
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Christie & Chiu should take a look at Oromin and compare!
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Cash cost, Semafo $540-589 : Oromin $408 (Will probably drop significantly in June 2011 feasibility)
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Price-to-net-asset value, Semafo 1.6 : Oromin .55 (Today's stock price of $1.11 divided by NAVPS of $2.02 from Mackie's November 24, 2010 report)
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I hear that Oromin's current net-asset-value-per-share is more like $3.00.
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IAMGOLD is currently looking for acquisition candidates with cash costs in the $400 range – I guess that leaves out Semafo.
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So what's the bottom line? My thought is that, using Christie's & Chiu's approach, Oromin could be taken over at $5 and still be considered a bargain.
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Gold producer Semafo seen vulnerable to a takeover
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Mackie Research Capital 11-24-2010 Report on Oromin
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