RE:Did anyone notice the News and Trading today ? Nov 18, 2024
“THE TD COWEN INSIGHT
With ETG shares up ~75% YTD and through our target price, we are lowering our rating to HOLD from Buy. Given the underlying complexity and uncertain timing of the company's ongoing arbitration and license transfer efforts at OT, it is difficult to point to a sure-fire catalyst in the next 12-months with the conviction required to maintain a Buy rating at current valuation levels, in our view.
Impact: NEUTRAL
In April 2022 we upgraded Entre to a Buy from Hold shortly after Rio Tinto's initial bid
to acquire Turquoise Hill. Our rationale for the upgrade at the time was based in part on the potential for further consolidation of the Oyu Tolgoi (OT) project, considering Entre has a 20% effective economic interest in a portion of the Hugo North underground deposit, currently under development, along with a 20% effective interest in the majority of the Heruga deposit. While ultimately Rio Tinto was successful in acquiring Turquoise Hill, no offer has emerged for ETG as the company continues to work through a mining license- related arbitration process with Rio Tinto. Horizon Copper and Rio Tinto continue to be the company's largest shareholders at 24% and 16% respectively.
As a reminder, on October 29, an update was provided on the ongoing efforts towards reaching a path forward with Rio Tinto to transfer the wholly-owned Shivee and Javhlant mining licenses to the OTLLC JV. ETG highlighted that the company remains engaged in discussions to "finalize either the execution and delivery of the existing JV agreement or conversion to an alternative agreement of equivalent economic value".
While the release lacked any major updates, in our view, the filing provided context
on where the license transfer process currently stands. The company noted that the parties have identified a potential pathway forward, however, flagged that any definitive alternative agreement between the parties requires the approval of the nine-member OTLLC board (which includes six members appointed by Rio Tinto and three by the Mongolian state-owned company that holds a 34% interest in OTLLC).
Given it is unclear what an 'alternative' agreement may consist of with respect to ETG's economic interest in OT, and the timeline that may be tied to an updated agreement, it is difficult to point to a clear near-term catalyst for the company with strong conviction.”
Well "sure fire" or "clear" catalyst is a kind of strange "all or nothing" handicapping of the very obvious possibility that all ETG issues, JV issues, tax stability issues, Mongolian 34% ownership demands, could all be solved by negotiating one number - a share price for Rio Tinto or OTLLC to buy ETG.
Yes, Rio Tinto and Mongolia are difficult counterparties (18 years of failure to budge negotiations). Yes HCU talks the talk about just waiting on their share ownership for production, as if there are no risks or downsides to them in the current ownership structure, (they already have an oddball risk proposition with Hod Maden in Turkey, you might think if they want to build up a copper streamer they would like to own direct royalties and streams in multiple stable jurisdictions) but Erfan was also quick to add he is a pragmatic businessman ie. "show me the money". Given the timing it sounded so much like a calculated negotiating posture.
Management are just exercising the 1.5 million outstanding 0.365 cent expiring December options, and also issued a full tranche of options and DSU's among the Board and Management yesterday. Not that they might not do so in any event, but it is another step in clearing the decks if a buyout is coming. The extraordinary long period of no insider share sales continues.
So what is TD up to? Who knows, trying to help box down the trading price on its usual thin volumes? There is so little dollar volume active retail trading through TD you have to wonder why they even continue coverage. But given their comment they can act surprised if a premium to market buyout offer is announced.
I think many believe a buyout is the most probable scenario, but there are no "sure fire" assurances - it's a probabilities game. If we aren't bought out then presumably the continuing elapse of time to production, the possibilities of inflating copper and gold prices, the expanding resource restatement, will all push up the NPV in the meantime.
cg