HGO - Hillgrove Resources

[Jimminy]

pretty spot on J Nimble.....as a holder of ESG I have been wondering the same thing for a while.....

So does Kevin:

DO you want to know the dumbest thing in the world?

Well, perhaps not the entire world, but at least in the small contained atmosphere that is the Australian sharemarket, which itself is sometimes prone to bouts of lunacy.

How is it at all possible that Hillgrove Resources can have a share price of just 39.5 cents, when the shares it holds in both Eastern Star Gas and Intermet Resources are actually worth more than that?

Let's go through the sums, with numbers that are current at time of writing. All the data has been provided to us through people associated with Hillgrove.

The company built a 22.6 per cent stake in Eastern Star Gas (verified by resource intelligence company Intierra) after it swapped its 32.5 per cent interest in the Gunnedah Gas Project for a 19.9 per cent stake in Eastern Star.

At a share price of 80c for Eastern Star, Hillgrove has a stake worth $142.62 million, or 43.3c per Hillgrove share, given that it has 323 million shares on issue.

Hillgrove's stake in Intermet Resources is worth $1.86 million at an Intermet share price of 29c and given Hillgrove has a 29.1 per cent stake in the company.

That equates to 0.6c per Hillgrove share.

Add that 43.3c and the 0.6c together and you have a tangible value for Hillgrove stock - based on its shareholdings in both Intermet and Eastern Star - of 43.9c.

However, and this is where it gets interesting, the market has ascribed a value of just 40c for Hillgrove scrip, giving it a market capitalisation of $129.2 million.

Or, in other words, the value of its two stakes in Eastern Star and Intermet is worth about $12.6 million more than the market capitalisation of Hillgrove.

In a roundabout way, Hillgrove is actually paying investors to take a stake in the company, which actually happens to have quite a decent copper project on its books.

Hillgrove's Kanmantoo Copper Project in South Australia has a JORC resource of 34.44 million tonnes at 0.9 per cent copper and 0.2 grams per tonne of gold - in short, 290,000 tonnes of contained copper and almost 217,000 ounces of gold.

The company is in the throes of getting a Mining Lease approved for the project along with a $100 million facility to fund its development.

It is rare for a company to actually pay you to own its asset.

It would be even rarer if someone out there doesn't find fault somewhere with Daily Assay's calculations.

But then again, we're pretty sure we have crossed the t's and dotted the i's.

http://www.theaustralian.news.com.au/story/0,25197,23809732-15023,00.html

 

[b00mer]

Its curious that HGO's price tracked ESG's exactly last year when ESG ran up to 70 cents yet currently there is no appetite for HGO in the market to the point where there is no value at all attributed to the Copper & other exploration assets plus a discount on their holding in ESG.

ESG based on current value of Coal seam gas has plenty of upside even from here at 90c. All that combined with Kanmantoo why the apathy in the market?

I guess it depends on what mgt does with the ESG holding and how dogmatic they want to be in terms of financing (in this market) and developing minerals side of business. In short term it may be better for shareholders if they sit back and go for the ride on ESG.

yes I'm a frustrated HGO shareholder ....but ever the optimist!

happy investing

 

[BornInUSSR]

Looks like Hillgrove Resources ain't going to let InterMet go for sure with their's Third Supplementary I got a sneaky feeling the offer will be eventually accepted.

 

[stargazer]

Hi all

Anyone have any idea why the SP has gone from 40c only a couple of months ago when it had some movement to 17c today.

I am unable to find a reason apart from market sentiment.

Was the ITT decision that bad.

Cheers
SG

 

[J.B.Nimble]

Hi all

Anyone have any idea why the SP has gone from 40c only a couple of months ago when it had some movement to 17c today.

I am unable to find a reason apart from market sentiment.

Was the ITT decision that bad.

Cheers
SG

The SP continues to track the ESG share price to the extent that HGO's market cap is still worth slightly less than its holding in ESG, with absolutley no value given to Kanmantoo, ITT, cash or whatever else of value they may have - it wasn't logical earlier in the year and it's no more logical now. At least it is consistent...?

 

[Datsun Disguise]

Howdy all - surely some attention is due to Hillgrove atm. With a mkt cap of about $40m and investments and cash of nearly $90m this would have to be a great way to get exposure to ESG (21.9%) and to some other projects. Not a bad way to get around ESG's current tyrading halt either if you believe that is going to be good news. have only done my helicopter level research so far but it certainly warrants a closer look.

 

[Datsun Disguise]

Here's the graph for the last while - note how HGO has not responded to ESG's latest rally - haven't found a reason why yet - any ideas around?

 

[Dangerous]

Howdy all - surely some attention is due to Hillgrove atm. With a mkt cap of about $40m and investments and cash of nearly $90m this would have to be a great way to get exposure to ESG (21.9%) and to some other projects. Not a bad way to get around ESG's current tyrading halt either if you believe that is going to be good news. have only done my helicopter level research so far but it certainly warrants a closer look.

I agree Dato... I bought quite a few on Monday for the sole ESG reason and will research the company more a bit later.... It is a no brainer to me and as long as esg stay above 40c there is no way i will consider selling.

 

[Datsun Disguise]

ESG has jumped a little today and HGO has reacted also. Some quick calcs show the following;

HGO interest in ESG is 151m shares (worth $106m @ ESG70c)

HGO shares on issue 389m (worth $53m @HGO14c)

For each 2.5c rise in ESG, HGO adds 1c to it's value (assets held NOT mkt cap).

If HGO adds value at this ratio (which it hasn't been recently) then it's percentage return is about double that of a direct holding in ESG.

2.5/70 = 3.6% 1/14 = 7.1%.

I've got a parcel of these as if/when ESG really gets going then HGO should also enjoy the ride - although at these prices it should be a more rewarding one.

Haven't even considered the Gold and Copper projects;

Kanmootoo Gold & Copper 32.2Mt @0.9% Copper & 0.2% Gold
Birds Head Gold drill intercepts 14.6g/t (14m), 20.8g/t (6m), 8.64 g/t (40m), 70.95 g/t (8m)

Looks like opportunity knocking to me...

comments?

 

[Dangerous]

ESG has jumped a little today and HGO has reacted also. Some quick calcs show the following;

HGO interest in ESG is 151m shares (worth $106m @ ESG70c)

HGO shares on issue 389m (worth $53m @HGO14c)

For each 2.5c rise in ESG, HGO adds 1c to it's value (assets held NOT mkt cap).

If HGO adds value at this ratio (which it hasn't been recently) then it's percentage return is about double that of a direct holding in ESG.

2.5/70 = 3.6% 1/14 = 7.1%.

I've got a parcel of these as if/when ESG really gets going then HGO should also enjoy the ride - although at these prices it should be a more rewarding one.

Haven't even considered the Gold and Copper projects;

Kanmootoo Gold & Copper 32.2Mt @0.9% Copper & 0.2% Gold
Birds Head Gold drill intercepts 14.6g/t (14m), 20.8g/t (6m), 8.64 g/t (40m), 70.95 g/t (8m)

Looks like opportunity knocking to me...

comments?

I agree Dato, when i found this one i was pumped. However, there is 150 $US200K convertible bonds outstanding (30 june 2011)

Perhaps they are getting a kick from the AUD strength? There is certainly a bit of volume behind them today and if you like ESG i think you better off holding HGO.

My calcs are the same but I add 43M to the 53M, meaning the diff between cap and assets is only 10M, not 50M.... great stock though, i think it a winner

 

[Datsun Disguise]

My calcs are the same but I add 43M to the 53M, meaning the diff between cap and assets is only 10M, not 50M.... great stock though, i think it a winner

Ah, I hadn't stumbled over the convertible notes. Does your 43m account for all future dilution? Have to count the cash generated by any options being exercised as well. But anyway, my point is not really about the gap between assets and market cap but more about the potential leverage available on the ESG share price.

I note that ESG's response to todays speeding ticket was a "We know nothing about a Santos takeover as reported in the AFR". Now that would be a juicy piece of news if it was proved true...

 

[Datsun Disguise]

Moving up nicely... up about 100% since I first posted on this in March. By comparison ESG has improved by about 40% - there's the leverage for you!

I've heard the speculation that Santos may be looking at ESG as a good place to spend some of their capital raising. Surely a great way to get into it would be through HGO. A 20% holding is not to be disregarded. So 2 ways - a takeover of HGO - maybe not likely, the other projects are not exactly core and taking over a company just has to be a pain in the neck. So perhaps an offer to take on HGO's equity in ESG?

Any other thoughts on what might make sense to STO if, IF, they were looking to get at their hands on ESG's assets?

 

[Dangerous]

Moving up nicely... up about 100% since I first posted on this in March. By comparison ESG has improved by about 40% - there's the leverage for you!

NICE WORK DATO!....

Usually when i double anything i get rid of half (the remainder are in effect free), but not this one.

This is a ripper.... still mkt cap = ESG holding less convertible notes/bonds. In addition $4M has been raised for other projects which tells you they are not getting rid of ESG cheap

 

[dandyjac]

Hopefully hillgroves share price may get a move on tommorow with the news of santos buying into esg. $176 mill to hillgrove should be a good cash injection to help in the development of the kanmantoo project & birds head project in indonesia

http://news.smh.com.au/breaking-news-business/santos-buys-stake-in-eastern-star-20090702-d6en.html

 

[Dangerous]

take convertible note out of the mix and they have 33c/share of net cash... should be good day and MEL should get a nice kick

 

[philly]

Moving up nicely... up about 100% since I first posted on this in March. By comparison ESG has improved by about 40% - there's the leverage for you!

I've heard the speculation that Santos may be looking at ESG as a good place to spend some of their capital raising. Surely a great way to get into it would be through HGO. A 20% holding is not to be disregarded. So 2 ways - a takeover of HGO - maybe not likely, the other projects are not exactly core and taking over a company just has to be a pain in the neck. So perhaps an offer to take on HGO's equity in ESG?

Any other thoughts on what might make sense to STO if, IF, they were looking to get at their hands on ESG's assets?

Well done Dato, you correctly picked Santos going for HGO's interest in ESG.
HGO will pick up $176,956,050.00 and this represents 44 cents per HGO share [$176,986,050.00 cash / 389,000,000 shares on issue]
Plus HGO will get the cash in 2 weeks.
As of today it seems the market hasn't factored this into the SP [currently @24 cents] and also fails to factor in HGO's 84.8% interest in ITT and the Kanmantoo Copper / Gold project
IMHO HGO has largely been ignored by the market [ no broker reports since August 2008] Time for the sleeping dragon to awaken. Good luck to all holders

 

[Dangerous]

Well done Dato, you correctly picked Santos going for HGO's interest in ESG.
HGO will pick up $176,956,050.00 and this represents 44 cents per HGO share [$176,986,050.00 cash / 389,000,000 shares on issue]
Plus HGO will get the cash in 2 weeks.
As of today it seems the market hasn't factored this into the SP [currently @24 cents] and also fails to factor in HGO's 84.8% interest in ITT and the Kanmantoo Copper / Gold project
IMHO HGO has largely been ignored by the market [ no broker reports since August 2008] Time for the sleeping dragon to awaken. Good luck to all holders

You need to remember that the price of ESG was already taken into account in the share price prior to STO offering over $1 for the holdings....

I work out their net cash less the convertible note (see financial statements) to be 33c/share. Obviously they have to burn cash to get these mines up and going, so i would have thought 27-30c would be about right. Their fuzzy strategy would not be helping to instill the mkt with confidence.

Just interest alone though would be almost 2c/share.

Could the directors pay a dividend this year, which is quite common after large divestments?

 

[DVEOUS]

HGO will pick up $176,956,050.00 and this represents 44 cents per HGO share [$176,986,050.00 cash / 389,000,000 shares on issue]

Philly, is that a typo, or where is this extra $5million coming from?

Hillgrove Resources Limited (ASX: HGO) advises that it has entered into a securities sale
agreement with Santos Limited for the sale by Hillgrove of a 19.99% interest in Eastern Star
Gas Limited (“Eastern Star”) for a total consideration of $171,986,050 cash.
Settlement of the transaction is anticipated to occur by no later than Monday, 20 July 2009.

In the bigger picture, this is probably insignificant though.

There's plenty of buyers hovering @22.5c this afternoon.

This one could be worth a punt.
By Monday week, the market has to take into account the STO payment, surely?

 

[philly]

Hi Dveous,
just a typo I'm afraid.
I would have thought that with the $$$ payable on 20/7/09 the SP may have edged a bit higher. IMHO the SP does not reflect the value of HGO's assets.
Maybe I need to be a bit more patient

 

[DVEOUS]

I've just been reading through HGO's last quarterly report, and I see different figures.

Please correct me, if I am misinterpreting anything.

As of 30 April 2009, there are 378,693,978 ordinary shares.

The market value of Hillgrove's investment portfolio as at 30 April 2009 was approximately $135.4 million.

Cash on hand as at 30 April 2009 was $8.1 million.

Investments + Cash (ie; 135.4 + 8.1) = $143.5 million.

Also, after the quarter closed, on 18 May 2009 an additional share placement of 34,333,333 shares was finalised, raising an additional $5.15 million.

So, by my reckoning, that's;
$143.5 million + $5.15 million = $148.65 million

And, 378,693,978 + 34,333,333 = 413,027,311 ordinary shares. ($0.36/share)

Add the $171,986,050 cash from STO, and that would be: $148.65m + $171.986m = $320.6million ($0.78/share)

Am I missing something here?
I haven't factored in a cash burn for the three months since (MAY/JUN/JUL) of around $2 million (assuming similar to previous quarter). It doesn't make much difference anyway.

I am trying to understand why the market is ignoring the intrinsic value of this company.