My view on TVX . (Jan 28, 2000) (partially revised on Mar 20,2001)
I am a long time investor of TVX. The question of whether TVX is a turd or a gem did come to my mind when I wait up early this morning. Reviewing my file on TVX and its annual reports. I sum up a few points and wish to share with some serious TVX investors.
On Oct 16, 1998. Nesbitts Burns issued an analysis on TVX after TVX lost 12%+12% on the Greek mines. TVX was rated-3 with a target of US$2.75. In the report, Nesbitts Burns stated that the most pressing issues facing the company consists of (a) the financing and ultimate development of Hellenic Gold assets (b) how the company will address the $250 million Gold-linked Notes and its repayment and/or refinancing.
(a) The Greek mines
TVX purchased the Kassandra mines for $47 million.in March 1995 and had spent about 180 million including (updated Oct 16, 1998) in acquiring/developing the project. ($1 per share) The mines were described as world-class mines and said to worth’s $12 billion. ($6.67 per share) It will need another 242 million to build which 130 million + 40 million bridge loan came from Deutche Bank. 72 million will have to come from TVX cash position. It was standing at 153.5 million ending 3rd quarter 1999. The bridge loan would subsequently be repay be EU grant. Total asset/expenditure of the mines would come to $442 million or approx. $2.4 per share on completion.
May 12, 1999 In the 1st quarterly report, Olympias project is estimated to produce 210,000 oz. gold and 37,500oz gold equivalent silver plus other minerals. Cash cost was said to be less than $100 per oz. Construction cost of the mines is $146 m after 35% EU grant. Full production is expected to be reached within 2 years from start of construction, which could begin in early 2000 if permitting is completed as planned.
May 26, 99 Company press release stated that TVX Hellas received the site pre-approval permit for the Olympia’s polymetallic gold project from Ministry of Environment of Greek Govt. These allows TVX to conduct all necessary on-site work for completion of Environmental Impact study and engineering design for the gold plant. TVX is to submit the permit application during the 3rd quarter.
Nov 5, 1999 In the 3rd quarterly report, Olympias project estimate production per year is revised to be 254,000 oz. gold and 39,000 oz. gold equivalent silver. 1st year full production would be 2003. Cash cost would be $91 oz. in the period and average $87 through out its life. Olympias Environmental Impact Study (EIS) was submitted to the Greek authorities on Nov. 1. Approval is anticipated in the first quarter 2000.
Nov 15, 1999 TVX has issued a letter of intent to award an Engineering, Procurement and Construction Management contract (EPCM) to SNC-Lavalin America, for the development of its Olympias gold polymetallic project in Greece. TVX has received a conditional commitment letter from Deutsche Bank, AG(London) which proposes underwriting $130 million of limited recourse debt finance and $40 million of grant bridging finance for the development of the project. (see PR Nov 15, 1999)
In Dec 2000, SNC Lavalin estimated that the initial capital cost to bring the Olympias project into production would be US$258 million, an increase of 10 million over the feasibility study estimate.
The underwriting commitment of $130 million of limited recourse debt financing and $40 million of grant bridge financing for the development of the project remain in place.(see NR Mar 9, 2000)
(b) Gold-linked Convertible notes.
TVX issued $250 million gold-linked convertible notes on March 24, 1997. These notes bearing an annual interest of 5% p.a. Each $1000 notes are convertible at the option of the holder into a number of common shares determined by a formula with reference to the trading value of 2.761287 ounces of gold value prior to maturity of the Notes. TVX may also satisfy its obligation by delivering cash instead of shares.
These notes stands at $215.64 million in the 2nd qtr. Report 1999. On December 20, 1999 TVX anounced a buy back $12.5 million of Gold-linked notes.
Annual report 2000 stated that these notes stands at 233.960 million compared to 221.635 million reported in 1999.
Share value of TVX.
Assets
The 5 existing mines is value to be $180 million (by Normandy deal.)
The Greek mines is value to be $1200 million (by Keith Damsell of Financial Post) assumes this could be sold for 600 million.
Cash position $153.5 million
Total asset is $717 million after redemption of gold linked notes. Breaking up this company would get us $4 per share.
Conculsion.
TVX produced about 250,000 oz. of gold per annum after the Normandy deal. Total total cost per oz. now is close to $300. The company cannot make money at this POG level. Total total cost per oz. will reduce to about $200 once Greek mines is in full production. TVX will have a profit of $50 million or $0.30 per share base on a POG of $300 in 2003. What still worries me is the maturity date of the Notes. If these notes were to convert into common shares, it will dilute our share value into half. Will TVX has enough cash to address the issue? TVX share price is 75 cents now only 20% of its fair value. The reason is because the street said money invested in gold or gold stocks is dead money plus POG is going nowhere since the last eruption. But with news of approval of Greek mines coming out soon enough. Would it go any lower? Will this company go broke? Never if the Greek mines is to be in operation. |
