Highlights from TD Securities report on SouthernEra
Resources Inc. by Terry Bell and Jacqueline Allison.
August 24th 1998
The report is 16 pages. SouthernEra mailed it in response
to my email request. Following is only a brief summary.
Recommendation: BUY
12 Month Target Price: C$12
Potential 12-Month Return: 100%
Net Asset Value Per Share
Luo, Alluvials, Angola $0.19
Marsfontein Project, South Africa 2.60
Klipspringer Project, South Africa 3.82
Camafuca Kimberlite Pipe 3.08
Other Angolan Alluvials 0.38
Other African Properties 0.38
NWT Diamond Properties 0.77
Working Capital 0.30
Long-Term Debt 0.00
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NET ASSET VALUE $11.51
(26 million shares outstanding)
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1998e 1999e
Net Income $14,126,106 $39,842,606
Net Income Per Share $0.54 $1.53
Cash Flow Per Share $0.99 $1.97
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SouthernEra has entered the ranks of profitable diamond
producers, with strong earnings and cash flow to follow over
the next several quarters ... the shares represent very good
value for a proven exploration company that will have
strong, sustainable earnings and cash flow as a diamond
producer.
SouthernEra is a proven exploration company with a good mix
of early stage and development projects, that is making the
transition to become a significant diamond producer.
The 12-month target price is based on a cash flow multiple
of 6.5 times forecast 1998 after-tax cash flow and a
discounted cash flow valuation of the vaious assets of the
company.
The M-1 pipe should produce roughly 875,000 tonnes of ore in
the remainder of 1998, 1999 and 2000. The in situ grade of
the primary kimberlite was approx. 3.1 carats but to be
conservative, the mill head grade being used is 2.25 carats
per tonne. After fees and commissions, the per-carat value
for the stones is expected to be in the area of US$128 per
carat. With operating costs of roughly US$20 per tonne, the
profit margin is clearly outstanding.
SouthernEra reported a 2nd Qtr profit for the end of June of
C$0.15 per share, most of which was derived from
Klipspringer. This first quarterly profit sets the stage
for strong earnings in the second half of the year to arrive
at an estimated net income for the full year of C$0.54 per
share and cash flow of $1.00 per share. With a full year of
processing M-1 pipe, these figures should rise to $1.53 and
$1.97 respectively.
SouthernEra is a few months away from producing the cash
flow and earnings that will assure its financial flexibility
to grow the company in its worldwide diamond business.
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Regards.
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