Yesterday Trigon Metals TSXV:TM announced it had received an indicative term sheet from the Horizon Corporation in the UK for the purchase of 100% of Trigon’s interest in the Kombat Mine in Namibia. The term sheet includes a purchase price in a range of US$30-50m in cash, and a limited royalty (terms not specified) that would be paid to Trigon from the Kombat mine production.
As clarified on the recent conference call, the existing debt that Trigon Metals carries is mostly at the asset level and will be transferred to Horizon, therefore allowing Trigon Metals to realise the entire US$30-50m. Trigon Metals has specified that the cash will be used to explore its other assets and distribute a dividend to shareholders.
“Though this transaction reduces the maximum upside for investors in the scenario where production is scaled by multiples and TM cash flows heavily; it gives investors a significantly lower risk but still a high reward if bought at today’s price and the deal goes through,” said Ben Pirie, an equity research analyst with Atrium Research in Canada. “We are maintaining our Buy rating and revising our target price to $1.50/share (previously $3.50/share).”
The proposed transaction is subject to certain conditions including due diligence and shareholder approval. It also includes a US$5m loan to Trigon to allow for the conclusion of the evaluation, due diligence, and sale process to be confirmed. Trigon will retain the Kalahari Copper project in Namibia and will also benefit from the planned spinout of the Safi Silver Moroccan exploration projects, Silver Hill and Addana.
Horizon Corporation is a private UK-based mining company focussed on the management of a large portfolio of projects with several in Africa, including a new interest in Namibia.
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The rationale for the acquisition was that Trigon needed additional equity capital in order to fund the production growth and mill expansion at Kombat; however, the current market valuation of the company was not supportive of this.
“The acquisition offered a better alternative for shareholders rather than taking on the dilution, operational, and the potential risk that the public market would not recognize the future value of its assets,” Atrium’s Pirie said. “From the lens of a shareholder, we would be supportive of the acquisition because it provides significant short-term upside in the form of a potential special dividend and we remain bullish on the exploration potential at Kalahari and Moroccan assets. We look at today’s share price as a buying opportunity ahead of the deal advancing.”
Atrium Research: valuation of Trigon Metals
Atrium Research said it based its valuation of Trigon Metals on an assumption of the midpoint of the $30-50m acquisition price and removed the equipment debt which is tied to the Kombat asset ($7.6m) while leaving the valuation for Silver Hill and Kalahari unchanged. As such, the Atrium target price moves down to C$1.50/share (with $1.25/share coming in cash from the acquisition) from C$3.50 originally.
“While we are disappointed that Kombat never got the full valuation we anticipated, the current upside of 150% is a much more likely outcome given the level of certainty management spoke with regarding the acquisition price,” Pirie said.
On Friday after market, Trigon announced its Q2/25 financial statements for the three months ending September 30th, 2024. The company reported a disappointing quarter with revenue of $7.2m (vs. $10m in Q1/25), adjusted EBITDA of -$1.4m (vs. $1.8m in Q1/25), and a C1 cash cost of $3.46 (vs. $3.23/lb in Q1/25).
Much of the miss can be attributed to the lower-than-expected copper sales price of $3.25/lb (vs. $4.18/lb in Q1/25) due to lead penalties in the concentrate, as well as a lower-than expected average grade of 1.79% vs. 2.05% (from the underground).
