In the week ended June 10th, I interviewed David Stein, MSc., CFA President & CEO of Aberdeen International (AAB-TSX, AABVF-OTC) here are some of the highlights of our conversation.
Please describe Aberdeen Intl. for readers unfamiliar with your company.
Aberdeen Intl. is a publicly traded, (AAB-TSX, AABVF-OTC) mining focused, investment company that sources its own proprietary deals and leverages its strong management team to unlock value over a 2-3 year time frame. We look for high quality mining assets that are trading at distressed values but that have underlying positive catalysts that we can help make happen.
Our portfolio consists largely of two private holdings, a 47% interest in African Thunder Platinum, (ATP) a South African platinum miner with 2 attractive projects, and a 50% interest in Sal de Los Angeles, that we recently joint ventured with Lithium X (LIX-TSXV). As part of that transaction we received 8 million shares of Lithium X. We also have a small portfolio of other publicly-listed investments, worth about $3 million.
Can we get a current snapshot of the company’s capital structure?
Yes, your (readers) can find that in our June corporate presentation. We currently have 88.9 million shares outstanding, 2.35 million options (at $0.44 until Jun-17) & 10 million warrants (at $0.30 until Nov-19), and no debt.
Does the Company need to raise additional capital? If so, what would be the use of proceeds?
Strictly speaking, we shouldn’t “need” to raise capital in the near term given our liquid assets. But, when we come across deals with a high expected return, we look at a number of financing options, including issuing shares. At any given time, this may be preferable to selling other assets or passing on a great deal. Of course, we also carefully consider where our stock price is compared to the value of our holdings. I should add, we’ve bought back more shares than we’ve issued over the past 8 years (excluding options exercised).
In your corporate presentation, an approximate Net Asset Value of C$45 million is provided. Aberdeen’s current Enterprise Value is about C$12 million. Why the disconnect?
Yeah, we get caught up in the same holding company discount situation as many other investment companies do, and being a micro-cap stock; we think sometimes the disconnect is exaggerated. In the past bull market, our discount tightened to about 80% of NAV, recently we’ve been trading between 30-50% of NAV.
We were happy to see our share price move when we announced and closed our deal with Lithium X. We think that deal provided the market with a good public benchmark, (8 million Lithium X shares) for half the value of our Sal de Los Angeles asset, yet the market seems to give us little-to-no value for our large holding in ATP. I think there’s an excellent opportunity for them to demonstrate the value of ATP in coming months, readers should stay tuned.
Without necessary commenting on the potential value of Aberdeen’s assets, can you describe the components that would be attributed value by someone doing due diligence?
The main components would be,
1) Sal de Los Angeles JV (8 million Lithium X shares + the value of our remaining direct holding in the project, currently at 50%)
2) 47% interest in African Thunder Platinum
3) Other holdings (including about $3 million in equity positions and cash)
What near-term catalysts could attract attention to the underlying asset value of the Company?
We get asked this a lot. There are two main catalysts in the near term. Lithium X has declared its intention to do an updated resource study on Sal de Los Angeles, and there should be progress announced on the SESA pilot project and the larger feasibility study (required for its deal with Aberdeen). Positive announcements on Sal de Los Angeles should help demonstrate the value for Aberdeen. We’re also reviewing alternatives to take ATP public and/or raise money externally for the next phase of its growth. I expect that any announcement allowing them to demonstrate a fair market value of our ownership stake could result in a re-rating of Aberdeen.
Can you provide more details on the African Thunder project?
We invested in ATP because we see it as a platform for industry-leading low-cost production and we think it could be a consolidator of platinum assets in a tight market. After making several follow-on investments with our partner Pala Investments, we each hold about 47% of the Company. ATP owns two main assets in South Africa, the Smokey Hills platinum mine is located in the Eastern Limb of the Bushveld platinum mining district, just northeast of Johannesburg.
The mine and 60,000 tpm mill and concentrator was built by Platinum Australia. At full production the mine can produce about 60,000 oz/yr (combined platinum-palladium) at a low cost. ATP also owns 50% in a joint venture on the large Kalplats project – an undeveloped open pit platinum-palladium project in Northwest Province. ATP operated the Smokey Hills mine for about a year (in 2015) in order to rehabilitate the previous condition and ramp-up production, however they stopped short of full production due to falling metals prices.
The mine is currently on care and maintenance, and Rand-denominated platinum-palladium prices have improved since Q1 and are expected to rise further. With that in mind, ATP is currently optimizing its mine plan for future production. Advancing Kalplats is another priority for us, with a large resource only drilled to a shallow depth, we think this project could be a leader in capital efficiency and operating costs. Given the nature and orientation of the historical JORC (Australian resource reporting standard), resource, we believe there’s plenty of exploration potential.
How about the Sal De Los Angeles project, is that the main focus at this time?
Good question, Sal de Los Angeles is now taking a back seat from a management point of view, as we have handed off operational control to Lithium X. However, we think for investors it will remain a focus. We recently released a 43-101 technical report on the project (available on www.SEDAR.com) which goes into the historical work that was done on the property by previous owners.
We invested in Sal de Los Angeles originally because, in our view, it was one of the highest quality, undeveloped lithium projects on the planet. Historical work on the project demonstrated substantial promise, but the data is not currently NI 43-101 compliant. Lithium X has retained SRK Consulting to update the historical mineral resource to current mineral resources. We look forward to SRK’s findings.
There’s potential to produce potash as a by-product to offset some of the operating costs. Already, we’re glad we partnered with Lithium X. Their strong management team and market profile has been highly accretive to Aberdeen shareholders. In addition to 8 million shares already paid by Lithium X, it has the option, after producing a Feasibility Study and spending $3 million on the project, to acquire another 30% from us for $5 million in Lithium X shares (at a 10% discount to market).
In the end, we expect we will own a 20% interest in the project, which at that point, should be more valuable based on technical work and project de-risking that should occur over the next 1 or 2 years. It should be at, “shovel ready” stage by then.
Please explain the 3rd segment of your asset portfolio, “strategic investments.”
In addition to our holdings in ATP and the Lithium X/Sal de Los Angeles JV, we have a small investment portfolio of non-core public holdings, currently worth about $3 million, that we use to seed new opportunities. Our largest holding is shares of Fura Emeralds, worth just over $1 million.
Can you touch upon your management team & Board as per page 19 of your June corporate presentation?
Investment decisions at Aberdeen are made by myself, Executive Chairman Stan Bharti and Vice Chairman George Faught. We share roles in generating new deal flow, monitoring our investments and managing our position exits. Otherwise we have a high-quality but small support team that manages the accounting, legal & administrative aspects of the Company, supported by the infrastructure at Forbes & Manhattan in Toronto.
Our Board includes three excellent independent board members – Bernie Wilson, lead independent director, is an expert in governance, and is a former Vice Chairman of Price Waterhouse Coopers LLP; Moe Colson has a long career in the Canadian equity capital markets, and also has experience with public companies, including President & CEO of Lithium One; and John Begeman is a great technical resource for us, a mining engineer with recent public company executive experience as President & CEO of Avion Gold Corp.
Further information, Aberdeen Intl. (AAB-TSX, AABVF-OTC):
March 2016: Miningfeeds.com Interview
June 7th: Corporate Update
May 3rd: CEO David Stein, MSc., CFA receives: Canadian Young Mining Leaders Award.
David Stein, MSc., CFA Linked-In profile
Disclosures: Interviewer Peter Epstein, CFA, MBA has no prior or current business relationship with David Stein or Aberdeen Intl. At the time this interview was posted on EpsteinResearch, June 13, 2016, Peter Epstein owns shares of Aberdeen Intl. Aberdeen is a speculative stock, readers are expected to conduct their own research and due diligence. Readers should consult with their financial/investment advisor before buying or selling speculative stocks. This interview in no way whatsoever constitutes investment advice, nor is it a solicitation to buy or sell any public securities.