Company News: Harrick Road, Sandfire, Saracen and Freedom Foods
Property and alternative securities
Harrick Road Properties Pty Ltd (positive impact) has seen an upwards re-valuation of approximately 10%. Harrick Road is a company which owns two industrial properties located in Keilor Park, Melbourne.
We recently sought an independent external valuation which has seen an uplift in the value of both properties owned by the company (35 and 39 Harrick road) in an environment where Industrial property prices have firmed.
Australian Equity Portfolio
Sandfire Resources (positive) released its definitive feasibility study (DFS) for its T3 project in Botswana, which sent the stock 27% higher this week.
The study estimates a net present value of A$294m for the project (Sandfire's market capitalisation pre-announcement was $784m), with a payback period of 3.8 from production start.
Sandfire’s board has made a final investment decision (FID) on the project which will begin production in 2023, with an average production of 30 ktpa of copper and 1.2 mozpa of silver anticipated. The company has ample cash reserves with which to pursue the project but is likely to finance a significant portion of development costs through project financing.
The project serves as a springboard for Sandfire in the greater prospective Kalahari copper belt, with plans for expansion with the exploration and definition of new deposits, including the nearby A4 deposit.
We saw the stock rally dramatically over the week, on the back of what we perceive as the easing of market concerns of an ‘earnings hole’ in 2023-2024 as production from its flagship mine, Degrussa tails off.
Saracen (new position) is a new position that was added to Australian Equity Portfolios this week.
Saracen has grown to be one of a handful of mining success stories over the last decade, growing to become a multi-mine producer of over 700koz of gold.
It is a mid-tier gold producer that has recently decided to merge with fellow mid-tier producer and 50/50 owner of the Super Pit asset, Northern Star Resources.
The combined operations will result in Australia’s second-largest gold producer (behind Newcrest).
The Australian Equities portfolio has been constructed to have a gold position of approximately 6%.
The portfolio has broadly been underweight gold with the recent fall in the gold price.
We have taken this opportunity to add Saracen as a supplementary exposure (in addition to Aurelia and Newcrest), as we see it will provide greater exposure to movements in the gold price than our current positions.
Freedom Foods (negative impact) released its re-stated financial accounts on Monday.
Freedom Foods represents approximately 1.8% of Australian Equities portfolios and approximately 1.23% of the average client portfolio.
What was clear from the release of the revised accounts is that the business that was signed off by Deloitte for the past 5 years was not as presented.
It is incredible for us to see a business that reported making between $42-55m in EBITDA in 2019, restate its accounts to an approximately -$120m loss. Particularly so for a large ASX listed company (+$1bn market capitalisation preannouncement) that has been well supported over the last decade by several large institutions and a key supplier/majority shareholder.
Freedom looked to be a fast-growing and tremendously profitable company. The restatement of the accounts indicates the business is fast-growing, but not profitable at all. As investors, our judgments are heavily shaped by the financial accounts provided. In this instance, it is clear the external auditors failed to meet our expectations and the expectation of shareholders.
The company is planning on securing capital from a strategic investor and other shareholders (including the majority family shareholders) to fund continuing operations.
The update did not provide any information about how the company may operate going forward, and what level of cash flow and earnings can be expected in the coming 12mths.
Without that information, it is impossible to value the company or deduce the impact on its share price.
At this stage, we see that it is highly unlikely that we will take up any rights or participate in any equity raising, but we will keep clients informed as to any developments.