December 22nd, 2021 | 10:26 CET
Steinhoff, Alerio Gold, TUI - Cheap does not have to be cheap
Table of contents:
"[...] In our experience, the local communities are supportive and friendly. [...]" Steve Cope, President, CEO and Director, Silver Viper
Steinhoff - Is there finally a solution?
Steinhoff has been fighting insolvency since 2017 and had hoped to bring the battle to a successful end this year. In September, a solution seemed within reach after the creditors' meeting in the Netherlands gave the green light to the Company's plans. But in South Africa, a petition for liquidation was filed by the former owners of Tekkie Town, who were paid in Steinhoff shares before the insolvency. In mid-October, it became a certainty: there would be no end to the struggle this year, as the Western Cape High Court did not put the application on the agenda until the end of January 2022.
Then on December 15 came the surprising news that the Company had reached an agreement with the Tekkie Town founder. He will receive a good EUR 30 million and 29.5 million Pepkor shares. The prerequisite for the deal is that the overall settlement is reached. The Tekkie Town founder assured the Company of his support: "We will help Steinhoff implement the settlement as quickly as possible." Steinhoff is thus a significant step closer to finally bringing the proceedings to a conclusion.
Operationally, things have been looking up for the Company since some parts of the business were sold. Especially the Pepkor subsidiary was able to increase its earnings significantly into positive territory. The Steinhoff share is still a hot potato. If an announcement like the one on December 15 comes in, the share immediately ignites and quickly gains 30%. However, every negative report also pushes the share south again. Currently, things are looking better for the Company, but who knows what surprises are still waiting.
Alerio Gold - Focus on Guyana
Alerio Gold is a Canadian junior gold explorer that focuses its activities on Guyana in South America. The country's government supports mining, as gold alone has accounted for up to 35% of its exports. In addition to gold, the country is rich in oil and bauxite. The International Monetary Fund ranks the country as the fastest growing economy globally. Gross domestic product is expected to triple within five years. The Company currently owns two projects in Guyana, 100%.
First is the Harpy Project, located in the Guyana Shield. It is expected to contain over 110 million ounces of gold. In the immediate vicinity is the Guyana Goldfields, which produced over 124,000 ounces of gold in 2019. The Company is already much further along with developing the second so-called Tassawini project. The area is 1,381 hectares, and they have already spent CAD 34 million on project development, drilling 1,279 holes totaling 47,509m. A camp has been established, and the area is accessible by air and water. Initial gold deposits of 437,000 ounces of gold have been indicated, inferred another 33,000 ounces will be added.
The Company's management team has over 12 years of mining experience in South America and has set big goals for 2022. The exploration program in the coming year aims to expand mineral resources. In addition, approval is to be granted in accordance with the Environmental Impact Statement (EIS), an environmental impact certificate. The final step planned for the coming year is publishing a PEA study, i.e. a preliminary economic analysis. The share is currently quoted at CAD 0.25, corresponding to a good CAD 17.3 million market capitalization. Mining only the indicated resources, assuming a cost per ounce of USD 1,000 and a selling price of USD 1,800, would mean a profit of over USD 340 million.
TUI - Corona brakes again
The Corona variant Omicron is causing renewed travel restrictions, a disaster for the already battered TUI. It threatens to lose the entire winter business. The hope that the Corona vaccination would positively affect travel has been dashed for the time being. The first countries, such as Italy, require PCR tests from all those entering the country. This is likely to dampen the desire to travel for many people. Whether the German ski lifts will still be open as per 2G regulations from December 28 is unclear.
The question is, can it get any worse? Sales have slumped by almost 80% in the first nine months of the year. There were first glimmers of hope with the announcement of the figures for Q4, which ended on September 30. Sales rose by EUR 2.1 billion to EUR 3.4 billion, and positive EBITDA was reported for the first time since the start of the pandemic, amounting to EUR 160 million. The entire industry has enormous catch-up potential.
With the major shareholder Mordashov, which is said to hold about 33%, a strong partner has been brought on board, attracted by the Company's favorable valuation. He would not have invested over EUR 450 million in TUI if he did not assume that the Company was undervalued. Omicron is currently acting as a brake block. As soon as the situation in Corona eases, the TUI share should pick up again. The share is currently trading at EUR 2.50. Courageous investors can build up a first position here.
It is not always clear whether one should buy a share or not. At Steinhoff, the picture has brightened somewhat, but there have been repeated setbacks of late. If the comparison succeeds, one can take hold. Alerio Gold has promising gold projects in an interesting country in South America. The market capitalization does not even begin to reflect the indicated gold deposits. TUI has catch-up potential but is currently being thwarted again by Corona. Those who want to build up an initial position here should expect further setbacks. At some point, the travel industry will also boom again.
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