10 December 2018, Hong Kong – Greatgroup Investments Limited (“Greatgroup Investments”) has recently completed the sale of 50,108,395 shares, representing approximately 19.9% of the issued share capital of Stanmore Coal Limited (“Stanmore”), for A$0.95 in cash per share, under a share sale agreement (the “SSA”) with Golden Energy and Resources Limited (“GEAR”). The total consideration paid was approximately A$47.6 million. GEAR is an international coal mining and trading company listed on the Mainboard of the Singapore Exchange (“SGX”). Stanmore is listed on the Australian Securities Exchange (“ASX”).
The transaction price of A$0.95 per share represents a 14.5% premium to Stanmore’s closing share price of A$0.83 as at Friday, 16 November 2018, the date of the SSA.
It was noted by Chris McAuliffe of Sprint Capital Partners Limited (“Sprint Capital”) (Greatgroup Investments’ investment manager for the stake in Stanmore) that “this full cash deal provided Greatgroup Investments with immediate liquidity and a highly optimal time to exit from an economic standpoint, with the transacted price close to a five-year high.” Sprint Capital, as an experienced investment manager, also believes that average trading volumes of Stanmore’s shares were not capable of absorbing a market sell-down of this 19.9% stake without detrimentally impacting the then trading price of A$0.83 further. This is reinforced by the fact that total volume traded over the month prior to the sale was only approximately 4.5% of the total outstanding shares.
As recently as August 2018, Stanmore’s then-second largest shareholder, 3rd Wave Investors, divested their entire stake in Stanmore, representing approximately 14% of Stanmore’s thenshare capital, at ~A$0.83 per share. The Greatgroup Investments sale price, coming just three months after 3rd Wave Investors’ divestment in August 2018 and in arguably more uncertain overall market conditions, represents a healthy 14.5% premium on 3rd Wave Investors’ exit price.
Sprint Capital concluded this exit was compelling for several reasons. As a financial investor, volatility in coal prices was at the forefront of its mind – notably in China, where steel mills have generally filled up quotas for calendar year 2018 which in turn has caused demand to slump resulting in a wide consensus on declining coking coal prices (which prior to this were trading at multi-year highs). Stricter environmental legislation raises concerns regarding materially higher costs in the future. Further, at the macro-economic level, Sprint Capital anticipates uncertainty and challenging capital market conditions arising from global economic events such as the ongoing US-China trade war, Britain’s exit from the European Union and the tightening of monetary policies globally.
Sprint Capital further noted that a significant driver for Greatgroup Investments’decision was that, from an economic perspective and an objective evaluation of the resources currently available to Stanmore, the latter is a single production asset with a production of approximately 2 million tonnes per annum, and is not large enough as a producer to be able to significantly influence the demand and supply forces of the coking coal industry. Sprint Capital believes a strategic investor with the right expertise would help complement Stanmore’s management to develop a greater wealth of expertise, synergies and opportunities to strengthen Stanmore in the long-term, and particularly in terms of efficiency, production and ultimately profitability.