SGC Upside of 25%-40%https://seekingalpha.com/article/3737506-sunridge-gold-upside-of-25-percent-or-more-as-it-likely-winds-down-operations-in-2016 Sunridge Gold: Upside Of 25% Or More As It Likely Winds Down Operations In 2016 Dec. 7, 2015 8:33 AM ET | About: Sunridge Gold Corp. (SGCNF) Disclosure: I am/we are long SGCNF. (More...) Summary Sunridge has signed a deal to sell its stake in the Asmara Project to Sichuan Road & Bridge. It plans to wind down operations and return the capital to shareholders. The deal appears to have a high likelihood of being completed. Regulatory approval is needed in Eritrea and China, but the deal already involves state-owned companies from those countries. Management estimates that the distribution will be at least $0.35 CDN ($0.26 USD) per share, with the bulk payable around Spring 2016, and the remainder in Fall 2016. A look at the financials indicates that this estimate appears reasonable, with the distribution likely in the $0.35 to $0.40 CDN ($0.26 to $0.30 USD) range. Thus there is a potential for a 25% to 40% return within 12 months. Sunridge Gold (OTCQX:SGCNF) is a junior gold mining company that has signed a deal to sell its only major asset to the Sichuan Road & Bridge company. It then plans to wind down operations and distribute the proceeds to shareholders. Management currently expects to distribute at least $0.35 CDN ($0.26 USD) per share over two distributions during 2016. However, the stock is currently trading at only $0.28 CDN ($0.21 USD) per share. Sunridge primarily trades as SGC on the TSX Venture Exchange. The Transaction Sunridge currently owns a 60% interest in the Asmara Mining Share Company as its only major asset. The other 40% is owned by the state-owned Eritrean National Mining Corporation (ENAMCO). The Asmara Mining Share Company has 100% ownership of the Asmara Project in Eritrea. Sunridge's share in the Asmara Mining Share Company is being sold to Sichuan Road & Bridge for $78.33 million, with $71 million payable on closing (the currently estimated closing date is the end of February 2016), with the other $7.33 million due six months after closing. Sunridge plans to settle its obligations and distribute the first tranche shortly after closing, with the second tranche being distributed after receipt of the second payment. Both distributions are expected to be structured as a return of capital. High Probability That The Transaction Goes Through There are a number of conditions that need to met before the deal with Sichuan Road & Bridge is closed. However, it appears that the conditions are quite likely to be met and the deal has a strong chance of going through. One condition is that Sunridge shareholders approve the transaction at a January 2016 meeting. This is unlikely to be a problem since the expected distribution is close to double Sunridge's price before the deal was announced. Other conditions include the receipt of final regulatory approvals from within China, receipt of regulatory approvals within Canada (mainly from the TSX Venture Exchange), and receipt from the Eritrean government about the approval of the transaction. The deal signing ceremony in Eritrea was attended by the Vice Governor of Sichuan Province (China), indicating a significant level of Chinese government support. As well, Sichuan Road & Bridge is a major state-owned company, so it seems quite likely that the Chinese government endorsed the deal before it was signed. From Eritrea's side, the state-owned ENAMCO has also given its consent to the transaction and has partnered with Sichuan Road & Bridge in the past, so there should be no approval issues there either. Distribution Calculations I am going to go into some estimated calculations about the distribution that may be received by shareholders. Sunridge had around $0.74 million in net cash (cash plus receivables less payables at the end of Q3 2015). Eritrea owes interest to Sunridge on $13.33 million (Sichuan Road & Bridge is paying the principal) , but I am not sure about the interest rate, so I am estimating the total at $0.75 million. Sunridge has various obligations such as the Perry Estate Royalty Interest that are outlined in their filings as well, so those are included here. There are also Eritrean taxes on the profit from the sale, severance costs, continuing G&A costs and other costs to wind down operations. These various items are estimated, with the result being that there is approximately $66.17 million USD available for distribution, or around $88.4 million CDN. In $ Million USD Net Cash $0.74 Initial Payment $71.00 Second Payment $7.33 Interest $0.75 Tempest Capital Fee -$0.98 Perry Estate Royalty Interest -$1.50 WMC Entitlement -$0.86 Eritrean Taxes -$5.32 Severance -$2.00 G&A -$1.00 Other Closing Costs -$2.00 Total $66.17 If all the options and warrants from the end of Q3 2015 with an exercise price of $0.35 CDN per share or less were exercised, Sunridge would have around 284.9 million shares outstanding. The exercise of those options and warrants would add another $24.77 million CDN to Sunridge's cash position. Thus the estimated amount available for distribution is $0.397 CDN ($0.297 USD) per share at an exchange rate of $1 USD to $1.336 CAD. This is reduced to $0.388 CDN ($0.299 USD) per share at an exchange rate of $1 USD to $1.30 CAD. There is also a dispute involving Eritrea and another company that could potentially result in part of the payment of Sunridge's Eritrean taxes being garnished. I am not sure about the chance that will happen, nor the consequences of such a court ruling, but if Sunridge essentially has to pay the settlement to make the transaction happen, the cost will be $4.37 million USD, which would reduce the available distribution by around $0.02 CDN ($0.015 USD) per share. Conclusion It appears to me that the deal with Sichuan Road & Bridge has a very high chance of going through (although of course nothing is certain) and that management's estimate of a distribution of at least $0.35 CDN ($0.26 USD) per share is reasonable. I think there is a decent chance that the distribution could be slightly higher, although that should be treated as a bonus. There are other risks and uncertainties such as the exact amount of transaction costs and company closing costs, as well as taxation amounts. As well, the currency exchange rate can influence the distribution. The effect in US dollars is minimal since most items are denominated in US dollars. Canadian investors face higher exchange rate variability with a 3% change in the exchange rate affecting the estimated distribution by around $0.01 CAD. A weaker Canadian dollar is beneficial to Canadian investors in this case. Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.