Placement of a convertible bond and LOI for a capital increase
We reiterate our Buy rating for SunMirror and increase our fully diluted price target to EUR 174.30 per share from EUR 68.90 on lower discount rates and a strong raise in peer group multiples. We see additional short- and medium-term upside potential, 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. Additional upside to our price target could arise, should the company use the proceeds from the capital increase for acquiring further strategic mineral assets significantly below market values.
Last week, SunMirror announced the issuance of convertible bonds with a nominal value of USD 10.0 million. With a conversion price of CHF 70 per share, the convertible bonds entitle their holders to acquire 133,305 bearer shares with a par value of CHF 1.00. According to the management, the convertible bonds which will run until 30 May 2022 have been fully allocated. The net proceeds will be used for general operational purposes, for the expansion of the company’s portfolio and business activities in tier-one jurisdictions, namely in Australia and Europe, according to company information.
In addition, SunMirror has received a letter of intent from Barracuda Group to subscribe to 1 million new shares from a capital increase in a private placement. Similar to the convertible bond, the subscription price of the shares is CHF 70, excluding subscription rights of current shareholders. According to the company, the proceeds from the capital increase will be used for an expansion of the current portfolio and business activities in tier-one jurisdictions.
We value SunMirror by using a proprietary sum-of-the-parts valuation of the three mineral assets (primary valuation method). Eliminating our previous discounts which reflected the low transparency of the company’s business model and applying up-to-date peer group multiples, we calculate a sum-of-the-parts value of EUR 216.9 million (previously EUR 78.4 million) which translates into an equity value of EUR 174.30 per share (based on 1.244 million outstanding shares, fully diluted count of the convertible bonds but excluding the shares from the capital increase which has not yet been executed). Given the strong share price performance following our initiation report published in September 2020 with a price of EUR 1.70 per share, our new price target represents a further share price performance of 11.7%. We reiterate our Buy rating for the shares of SunMirror AG.
Founded in 2010, Sphene Capital is a German based pure-play research house offering state-of-the-art research and evaluation services to European small- and mid-caps by avoiding typical conflict of interests of traditional investment banks.
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