Annual results from Metal Tiger (MTR:9.5p), an Aim-traded investment company primarily focused on undervalued natural resources opportunities, have been completely overshadowed by news that the board is proposing a delisting of the shares from London’s junior market and adopting a new investment policy.
The directors are proposing that following a general meeting on 20 March 2023, the Aim listing will be cancelled on 31 March 2023. The company will retain its listing on the Australian Stock Exchange, so UK shareholders will still be able to trade their shares as their holdings will automatically be transferred to the Australian share register. However, the news prompted a 30 per cent share price fall, taking the price down to less than half the company’s 19.8p a share net tangible asset value on 31 January 2023 and below the 11.8p entry point in my 2020 Bargain Shares Portfolio.
Shareholders are being asked to approve a new investment policy whereby Metal Tiger will hold a portfolio of core investments, namely those listed on recognised stock exchanges, and hold a portfolio of complementary investments focused on companies and funds within the mining sector that will generate income for the group. The directors plan to change the company’s name to Strata Investments after the general meeting and the Aim delisting.
Portfolio nurses hit from 2022 bear market
- Annual pre-tax loss of £6.6mn
- Tangible net asset value per share falls from 22.9p to 18.9p, but has recovered to 19.8p since the year-end
- Share price trading on 52 per cent discount to book value
The announcement was made shortly after Metal Tiger reported a £6.6mn pre-tax loss in 2022, the result of last year’s bear market in resources stocks that forced the directors to unwind part of their holding in Australian Stock Exchange-listed Sandfire Resources (ASX:SFR), a mid-tier A$2.66bn (£1.5bn) market capitalisation mining and exploration group that is developing the T3 Copper-Silver and A4 projects located in Botswana’s Kalahari copper belt.
Metal Tiger realised a £3.8mn loss on the sale of part of its holding in Sandfire to pay down a margin lending facility. Since the financial year-end the company has sold a further 532,626 shares in Sandfire and now holds 4.23mn shares worth A$25.7mn (£14.5mn), or 3.7 times the outstanding loan balance of A$7mn secured on the holding under the margin lending facility.
In addition, Metal Tiger holds a further 1.167mn Sandfire shares worth A$7.1mn secured against a A$4mn equity derivative financing arrangement. Effectively, the company has A$21.8mn (£12.3mn, or 7.3p a share) equity in its Sandfire holdings, a sum that accounts for 36.6 per cent of its last reported net tangible asset value of £33.6mn (19.8p a share). Pro-forma cash balances on its balance sheet should be around £1.5mn (0.9p a share) after accounting for £0.67mn-worth of investments made since the financial year-end and cash proceeds from the Sandfire share disposals.
Metal Tiger also holds 53.65mn shares in Cobre Pty (AU:CBE), an Australian Stock Exchange-listed resource company that acquired Metal Tiger’s interest in Kalahari Metals, a company that is developing four projects in the Kalahari Copper Belt close to Sandfire T3 and A4 deposits. The 18.76 per cent stake in Cobre is worth $6.4mn (£3.6mn, or 2.1p a share), accounting for 10.6 per cent of Metal Tiger’s latest net tangible asset value. The balance of the listed portfolio is worth £2.5mn (1.5p a share) and consists of holdings in 23 listed companies.
The company’s other major investments consist of two royalties: a net smelter royalty (NSR) over Sandfire’s A4 exploration project (carrying value of £11.2mn), and a capped NSR over the T3 project (carrying value of £1.5mn). Combined, they have been valued at £12.75mn (7.5p a share).
Hold or fold
The question for UK shareholders is whether it’s worth holding onto the shares? The answer is a resounding yes given that the equity in the Sandfire and Cobre holdings back up all of Metal Tiger’s share price, meaning that you are getting a free ride on the valuable royalties and 23 other listed companies. Also, the company’s share price (MTR:ASX) on the Australian Stock Exchange is 32.5¢ (18.1p), or almost double the Aim-traded price, although one would expect the former price to drift once UK shareholders’ holdings are transferred to the Australian share register, thus enabling them to sell out at a far higher price.
That said, there is still an arbitrage opportunity to exploit by buying the Aim-traded shares in the UK market at the 52 per cent discount to book value ahead of the automatic transfer to the Australian register. Buy.
This article was first published on 6 March 2023 and updated on 7 March to clarify the delisting process of the AIM shares.
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