Mandatory convertible bond
Last week, SunMirror announced the issuance of a mandatory convertible bond with a targeted nominal value of EUR 20.0 mn. With a conversion price of approximately EUR 70 per share, the convertible bonds entitle their holders to acquire approximately 285,000 bearer shares with a par value of CHF 1.00. Since shareholders' subscription rights have been excluded, the convertible is to be subscribed by selected institutional investors in a private placement.
Together with a planned capital increase of up to EUR 70 mn through the issuance of up to 1 mn new shares at a share price of EUR 70 per share, SunMirror can be expected to generate total gross proceeds of up to EUR 90 mn. The net is intended to further strengthen SunMirror’s financial resources and to provide headroom for potential further acquisitions.
We maintain our Buy rating for the shares of SunMirror and our fully diluted price target of EUR 194.70 per share. We value the equity of the Dusseldorf Stock Exchange-listed company using a sum-of-the-parts valuation based on a Net Present Value (NPV) entity model, in-situ values, and peer group multiples. We did not model any future acquisitions. Our valuation is primarily driven by royalty schemes the company intends to generate from Cape Lambert North, for which we calculated an equity value of EUR 101.70 per share (base-case-scenario). We value Moolyella with EUR 50.80 per share, Lat66 with EUR 30.40 per share, and Kingston-Keith with EUR 8.30 per share. Higher grade potential at Kingston-Keith and Moolyella could represent further upside to our target price. Additional short- and medium-term upside potential can be identified, in our view, should the management decide for a trade sale of its most valuable mineral reserve, Cape Lambert South, to a strategic investor or succeed in exploiting that asset in a capital-efficient manner. Upside to our price target could also arise, should the company use the proceeds from the capital increase for acquiring further strategic mineral assets significantly below market values.
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