South32 Option Puts Silver Bull Resources in Play - Likely Bidders
Taken from the press release is the following regarding the South32 Option Agreement:
"To keep the option in good standing South32 will contribute a minimum of US$10 million by way of four annual tranches during the four year option period to fund exploration at the Sierra Mojada project. Provided that all the exploration data and information has been made available 60 days prior to each anniversary of the option agreement, South32 shall decide 30 days prior to the relevant anniversary whether or not to fund a further tranche."
Also
"The shareholders' agreement sets out certain matters which require super majority approvals at the board and shareholder level, as well as certain transfer restrictions and rights of first refusal with respect to the parties' interest in Metalin."
In other words, South32 current deal is the worst case scenario as long as drill results are positive each year before the next tranche of exploration budget is released by South32 to Silver Bull in accordance with the Agreement.
The Agreement grants South32 first right of refusal should other interested parties come along, but that means a bidding war for Silver Bull. Literally anytime another party could table a bid for Silver Bull in full and South32 would have to match or exceed the offer.
So let's consider some possibilities:
Another silver miner or zinc miner may be interested and they could offer $50 million for Silver Bull ($0.25/share) or $100 million ($0.50/share) and this would lead to full sale of Silver Bull.
Another possible outcome is after some drill results and the 4 year agreement that South32 takes a 70% stake, but if Silver Bull has a valuation similar to Arizona Mining currently at $1.4 billion, then 30% of $1.4 billion is $420 million or $2/share based on current shares outstanding.
There are many other outcomes with probabilities for all of them, but a floor has been set, a $10 million exploration program has been approved contingent upon results. The economic value of all these outcomes is significantly higher than $0.14/share for Silver Bull. South32 will get this company cheap and competitors and markets will not let that happen provided results continue to show a vast resource. Someone will bid just to have access or to affect a more fair market value for Silver Bull.
Since this deal the probability of Silver Bull fading away to a nothing stock dropped dramatically and the probability of advancing the project leapt and the stock price did not move. How long do you think this will last? The economic value of this little company just shot up and the market will eventually realize this. Perhaps it will take the first drill results in Year 1 for that to happen, but an over night revaluation would be very likely if it does not move higher in the meantime. If the stock goes up 10x tomorrow it is still only a $300 million dollar company. Other miners with less prospects, less proven and probable resources, and no major partner have higher valuations.
