Is the Metal Tiger share price undervalued?
It seems perverse that whilst the resource news from Botswana gets better and better, MTR’s share price does not react in the same positive way as their partner MOD Resources share price.
This graph compares MOD share price (brown line) with MTR’s share price. It is clear from this graph that MOD investors are reacting to news announcements resulting in the sp climbing whilst MTR’s investors have seen little improvement in the sp.
The following graph highlights that in October, November and December 2016 MOD Resources and Metal Tiger’s share price movements mirrored one another.
Then in 2017 the two share prices started to diverge. That divergence has increased significantly since the last MOD announcement. The two share prices now have moved so far apart, you have to conclude MTR is significantly undervalued or MOD over valued.
The following table takes into account:
1. MOD Resources – Sam’s Creek gold project and debt.
2. Metal Tiger – Asset Division, Thailand and Spain
and concludes that taking these variable into account the share price of Metal Tiger should be 5.1p. With the sp currently being 2.28p this would suggest the MTR share price is 131% undervalued.
Interestingly the latest VSA Brokers note has a price target of 5.68p. Reasonably close to the 5.01p highlighted in the table.
The table indicates the value of the Asset Trading division excluding MOD share holding as £2,010,000. It is worth noting that the actual value of the Asset Trading division including MOD is now £5.321m.
So why do we have a disparity between what ASX and AIM investors think about the value of the the Botswana asset?
- Did we have significant short interest when sp was below 2p? The rise above 2p happening as shorts closed as good news released.
- Short positions opened in belief warrant flipping would happen.
- UK investors don’t understand the technical data being released by MOD.
- MTR other interests, for example Thailand are seen as a negative.
If short positions holding the share price back, these eventually will have no option but to close as warrant flipping comes to an end, positive news from MOD continues and sentiment changes regarding the prospects for MTR.
UK investors will when the next brokers note is issued, have the technical data, they don’t understand, converted to a value / share price target. The last brokers note is out of date as doesn’t take into account the significant uplift in the value of the Asset Trading division or the increase in copper and silver resource in Botswana.
Thailand will soon be a KEMCO asset and any negativity, if it exists will not impact on Botswana value.
We are very close to reasons for the disparity between the MOD and MTR share prices being history. Based on no new information regarding resource size being released you would expect the MTR sp to rise to c5.1p.
Realistically the probability of the resource in Botswana not increasing is zero. You would therefore expect the sp to rise above 5.1p.
Invest in MOD or MTR?
The following table indicates the returns you would expect if invested £10,000 in the two companies and a sale of Botswana resulted in a special dividend of £500m.
QThe table highlights that because of the disparity in the share price you would be 58% better off investing in MTR rather than MOD.
** Update : 12th March 2017
This table indicates the impact of the share price rise in MOD on the 10th March and what would happen if MTR distributed the dividend attributable to their 4.9% holding to MTR shareholders.
Investing in MOD would provide a return of £48,777 and in MTR £91,373. This rather than a 58% uplift would be 90%.
Note: You also need to consider MOD have licences that MTR not involved in and MTR have other assets such as Thailand.
1. You could put forward a strong argument, if you believed a special dividend will happen, for transferring any holding in MOD into Metal Tiger.
2. MTR undervalued compared with MOD.
3. MTR share price has been held back.
4. We are very close to an MTR share price rerate.
5. MTR is currently a better investment opportunity than MOD.
It will only take a little price pressure for the sp to be released from the current range. Interestingly many of those anti MTR on LSE no longer post. This is a good indication they have closed their short positions.
This information is worth reviewing:
1. VSA Brokers note for MTR (old, doesn’t take into account latest resource data).
2. YouTube blog is well worth a listen. Highlights reasons as to why the MOD/MTR T3 prospect has great potential.