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Northland Capital Partners View on the City Hummingbird Resources and Anite Group

Published: 08:21 17 Jun 2015 BST

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Anite (LON:AIE) – BUY: Recommended cash offer
Market Cap: £309.9m; Current Price: 103p; Target Price: Bid situation (was 120p)
Recommended cash offer at 126p

  • Recommended cash offer at 126p per share from Keysight Technologies, a supplier of wireless design and validation tools. This represents a 22.3% premium to yesterday’s closing price, a 40.1% premium to the three month average, a 43.9% premium to the six month average and a 5% premium to our 120p price target.
  • Anticipated annual operational cost savings of £13m within 24 months and the acquisition is expected to close by the end of October.
  • Irrevocable undertakings from the Anite directors and institutional shareholders amounting to 15.2%.

NORTHLAND CAPITAL PARTNERS VIEW: An offer for Anite has been a matter of ‘when’ rather than ‘if’ for some time given Anite’s strength in the global Device & Infrastructure Testing and Network Testing markets. The question is whether the level of the Keysight approach (a 22% premium to yesterday’s close and 5% to our price target) represents a knock out offer. As previously argued, Anite serves a large, international and growing market that has considerable barriers to entry. Management has successfully diversified into adjacent markets through a number of bolt-on acquisitions and simplified the investment case following last year’s Travel disposal. That said, although the medium term demand drivers are positive, short term spending patterns in the sector can be lumpy (typically impacted by consolidation) and Anite would benefit from being part of a larger organisation. Today’s offer will definitely focus others’ interest.

Hummingbird Resources (LON:HUM): Enhanced economics & placing
Market Cap: £38.4m; Current Price: 37.5p
Technical studies to potentially increase IRR to 50.1% and NPV8 to 92.4m

  • Hummingbird Resources has completed a number of technical studies that indicate the significant potential to improve the projects economics of the Yanfolila Gold Project. These results will potentially increase the project’s IRR to c. 50.1% (from 35.1%), increase the NPV8 to c. US$92.4m (from US$72.4m), increase year one gold production to c. 130,000oz Au (from 100,000oz Au) and increase free cash by c. 5%. Though these improvements are based on an updated financial model, the model is yet to be fully updated and at present there is no certainty if these potential improvements to the economics will materialise.
  • Improved pit designs and mine scheduling should result in a 58% increase in the recoverable gold from Komana East (332,500oz from 211,000oz) and a 16% increase from Komana West (219,500oz from 190,000oz). As a result, the Company should see an increase of 38% from both orebodies and increase life of mine gold production by 8% and grade by 2%.
  • An updated mineral resource estimate is being prepared.
  • The pit slopes of both Komana East and West have been increased to 40-44o (from 30-33o) in the oxide and 52-56o (from 36-45o) in the fresh rock. Grade control drilling at both Komana East and West has been completed. Earthworks for the plant are now 75% complete against planned completion of 55% for this time.
  • Hummingbird is now focusing on an initial two pit mine plan at Komana East and West during the early years of mine life while debt is paid down. With three further pits at Sanioumale East, Sanioumale West and Guiren West to be brought into the mine plan at a later date, extending the mine life and increasing production ounces.
  • Completion of £3.5m placing. The Company will issue 10,606,060 shares at 33p per share. Following the placing the Company will have a total of 105,395,267 shares in issue.
  • Forecasts, rating and price target under review.

NORTHLAND CAPITAL PARTNERS VIEW: As a result of the positive results from the technical studies, Hummingbird Resources will now mine more ounces from the Komana East and Komana West pits than was previously planned from the five pits. Economic improvements that result from these technical studies have yet to be finalised but initially look like they will substantially increase the project’s IRR to c. 50.1% (from 35.1%) and increase the NPV8 to c. US$92.4m (from US$72.4m). The placing gives Hummingbird Resources the cash needed to ensure that there is no delay in the development of the Yanfolila Gold Mine as the Company is still awaiting the completion of the development debt financing from Taurus and the rainy season is approaching. It also increases the Company’s retail following and should improve the liquidity.

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