Ryerson University. Ted Rogers School of Management

Transcription

1 Goodman Challenge Ryerson University Ted Rogers School of Management

2 Team Dmitry Zaytsev George Tasevski Jacob Newman Adrian Parisotto Dmitry Zaytsev is a final year student. He has interned as analyst in a boutique investment bank, in structured finance at a credit rating agency and most recently, he worked as Treasury at a senior gold producer. He leads the Ryerson Investment Group as the fund s Chief Strategy Officer. George Tasevski is a 3 rd year finance student at Ryerson University. He has internship experience in financial advisory as well as capital markets and is actively involved with the Ryerson Investment Group, student run buy-side fund where he presently serves as Portfolio Manager. Jacob Newman is a 3 rd year economics and finance student. He has internship experience in Private Wealth Management and as a Data Analyst. Jacob is currently the President of the Ryerson Investment Group and covers the Consumer Staples & Discretionary sector. He enjoys camping and playing hockey and golf on his spare time. Adrian Parisotto is a 3 rd year Finance & Marketing student. He has internship experience as an Investment Banking Analyst, and as a Financial Analyst. He is also involved with the Ryerson Investment Group where he is an Analyst within the Metals & Mining sector. Adrian has played competitive hockey for 17 years. 2

3 Presentation Outline Case and Company Overview Industry Analysis Macroeconomic Analysis Comparable Analysis Valuation 3

4 Goodman Pension Fund Overview Risk Averse Disciplined, Stable Cash Flows, Mid-Large Cap Long Term Horizon Compounded Value, Proven Business Model, Long Mine Life Governance Seasoned Executive Team, Environmental Sustainability 4

5 Company Overview 450% 400% 350% 300% 250% 200% 150% 100% 12 Month Share Price Performance 369% 331% 50% 0% 111% January February March April May June July August September October November December January Performance as of February 17 th,

6 Recommendation: Detour TSX: DGC Price Target:$23 Market Data Class A Closing Price (February 15, 2017) CAD Market Cap ($bn) $3.04 Shares Outstanding (mm) Average Daily Volume 1,414,371 Enterprise Value ($mm) $ Week High $ Week Low $ %/$20 70%/$24 NAV Multiples $40 $30 $20 Simulated 1 Year Simulated Stock Price DGC Price Median low High $36.21 $21.06 $10 $7.10 $0 12/11 05/13 09/14 01/16 06/17 Source: Company Filings, Company Bloomberg 6

7 DGC Company Overview Entity s Structure Detour Corp P&P West Detour Mine 4% Proven PDX Resources, Inc. Trade Winds Venture, Inc. 96% Probable Overview Summary Second-largest Canadian intermediate gold producer Founded in 2006 by former CEO Hunter Dickinson Focus on gold production and exploration activities in Northeastern Ontario Largest gold reserves among the producing Canadian gold mines Currently constructing the Detour West Lake Mine Dedicated to responsible mining and growing cash flows organically P&P Detour Lake Mine 1% 20% Proven Probable Stockpiles 79% Source: Company Filings, Company Bloomberg 7

8 DGC Company Overview Cont d Asset Breakdown EBITDA Growth West Detour Mine Detour Lake Mine Revenue Growth (Millions of USD) $250 $200 $150 $100 $50 $0 -$50 $223 $232 $113 $142 -$ E 2017E Cost of Revenue (Millions of USD) $800 $600 $400 $200 $0 $661 $711 $536 $563 $ E 2017E $600 $400 $200 $0 $165 $541 $550 $528 $ E 2017E Source: Company Filings, Company Bloomberg 8

9 Governance: Environmental Sustainability 797 Full Time Employees 78M Wages Paid 1.5M Donated to Hospitals 220M Spent on ON Businesses 24% Aboriginal Employment Rate Mining Essentials Program, Women in Mining, Aboriginal Economic Development No process water was discharged to the environment in the 3 years of operation Proven land management practices to help minimize land disturbance Leading The Way leadership program Company Overview Industry Analysis Macro Comparable Analysis Valuation Conclusion Source: Company Filings, Company Bloomberg

10 Executive Leadership Paul Martin, President, Chief Executive Officer & Director Mr. Martin is a mining executive with over 25 years of experience in Canadian and international precious metals mining and development projects. Prior to joining Detour, Mr Martin most recently served as the CFO and Vp of Finance for New Inc. James Mavor, Chief Financial Officer Mr. Mavor is a finance professional with over 20 years of experience in the mining industry. Prior to joining Detour in 2012, he served as the Vice President and Treasurer for Barrick Corporation. Pierre Beaudoin, Chief Operating Officer Mr. Beaudoin is a mineral processing professional with over 28 years of international operating and project development experience. Prior to going Detour in February 2010, Mr. Beaudoin spent his last 16 years with Barrick Corporation. Company Overview Industry Analysis Macro Comparable Analysis Valuation Conclusion

11 Industry Overview 11

12 Industry Overview Price vs AISC AISC Price NYSE Arca GDM: Net Debt Per Share Key Industry Themes Asset Acquisition Cost Cutting Asset Divestment B/S Repair Canadian Dollar & Crude Oil Crude Oil (WTI) USDCAD Feb-15 Oct-15 Jun Company Overview Industry Analysis Macro Comparable Analysis Valuation Conclusion 12

13 Industry Overview Supply Demand (Metric Tonnes) 1500 Technology Investment Jewlery Central Banks % 0 Q Q Q Q Q Q Q Q Q % 210 Central Bank Demand (Metric Tonnes) $2, Central Bank Net Purchases Price $1,000 Total Mine Supply Recycled $0 Company Overview Industry Analysis Macro Comparable Analysis Valuation Conclusion Source: World Council 13

14 03/13 06/13 09/13 12/13 03/14 06/14 09/14 12/14 03/15 06/15 09/15 12/15 03/16 06/16 09/16 12/16 M&A Volume IPO Volume Industry Overview Quarterly Global Jewelry Demand (Tones) M&A/IPO Volume M&A IPO Supply Mine Production (Tonnes) 3,051 3,114 2,613 2,740 2,841 2,869 2,162 2,237 2,291 2,285 2,291 2,375 2,528 2,574 2,602 2,620 2,646 2,625 2,631 2,504 2,562 2,496 2,499 2, Company Overview Industry Analysis Macro Comparable Analysis Valuation Conclusion Source: World Council 14

15 Macro Analysis 15

16 Millions of troy ounces Near Term Catalysts Financial Flows New Bull Market? Bear Bull Net Short Bull? $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Total ETF Holdings COT Disaggregated Price [RHS] Source: Bloomberg, CBT Source: Bloomberg, CFTC 16

17 Near Term Catalysts Fed Rate Hike Path & 2.5% 2.0% 1.5% 1.0% 0.5% 4 Hikes 3 Hikes 2 Hikes 1 Hike $1,000 $1,050 $1,100 $1,150 $1,200 $1,250 $1,300 $1, % $1,400 January-15 July-15 January-16 July-16 January-17 Fed Funds Rate Expected Fed Funds Rate at End of 2017 Expected Fed Funds Rate at End of

18 Inverted Real yield Near Term Catalysts 0.8% 0.6% 0.4% French Political Risk French-German 10 year spread Fed Meeting 0.2% Feb-16 Jul-16 Dec & European Political Risk Brexit Trump -1 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 3 Week Correlation $1,400 $1,350 $1,300 $1,250 $1,200 $1,150 $1,100 Frexit? $1,400 $1,300 $1,200 $1,100 $1,000-1 & Real Rates Diverge $1, $1,300 0 Real Rate & $1,200 Divergence $1, Y US Treasury Note Real Yield $1,000 Feb-16 May-16 Aug-16 Nov-16 Feb-17 18

19 Public Debt IR US Federal Debt Long Term Macro Stagnant Real Productivity Growth US Federal Debt cost will NEVER get cheaper B B B B US Weighted Average Interest Rate US Public Debt US Budget Discretionary Mandatory Net Interest Financial Inevitability Inevitable Higher Prices Stagnant Productivity Higher Price 2021 Lack of Political Wall 6000B 5000B 4000B 3000B 2000B 1000B 19

20 Sites Specs Assets Comparable Analysis Single Asset Mine Producer Diversified Asset Mine Producer Non-Producing Assets Producer & Copper Producer Mineral Exploration Northern Ontario Canada, Serbia, Bulgaria, Namibia Northern Ontario & Quebec 20

21 Comparable Analysis Cont d Comparable Analysis Reserves Among Peers (M Oz) Operating Profile 30.0 Leverage Financial Profile Valuation Investment Risks Detour SEMAFO Yamana Eldorado IAMGOLD New Resources Among Peers (M Oz) Free Cash Flow / Total Debt Detour 5.9 SEMAFO 55.9 Yamana 47.0 Eldorado IAMGOLD New 250.0% 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% % Detour SEMAFO Yamana Eldorado IAMGOLD New Source: Company Filings, Company Bloomberg 21

22 % Return Comparable Analysis Comparable Analysis Operating Profile Leverage Financial Profile Valuation Investment Risks Leverage ($) return based on change in Price ($) MVGDXJTR GDMNTR DGC $17.8 $22.6 $28.2 $36.8 $45.5 $54.2 $62.8 $71.5 $80.1 $88.8 $175 DPM $3.62 $2.6 $3.1 $3.9 $4.7 $5.5 $6.3 $7.0 $7.8 $8.6 $16 OSK $3.83 $2.2 $2.3 $2.4 $2.5 $2.6 $2.8 $2.9 $3.0 $3.1 $4.2 *1-year daily regression, gold price as independent x-variable, DGC has the highest correlation coefficient among its peer group and $40 $35 $30 $25 Regression Analysis y = x R² = % 600% 400% Graphical Representation of Leverage MVGDXJTR GDMNTR DGC DPM OSK $20 DGC (LHS) 200% GOLD (Horizontal) $15 0% $1,100 $1,150 $1,200 $1,250 $1,300 $1,350 $1,400 $1,235 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800 $1,900 $2,000 $3,000 Price Source: Company Filings, Company Bloomberg 22

23 Comparable Analysis Cont d Comparable Analysis Gross Margin Operating Profile 40.0% Leverage Financial Profile Valuation Investment Risks 30.0% 20.0% 10.0% 0.0% 13.8% Detour 30.5% SEMAFO 12.8% Yamana 22.1% Eldorado 1.4% 8.0% IAMGOLD New EBITDA Margin Cash Ratio 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 35.3% Detour 49.0% SEMAFO 34.1% 31.2% 25.7% 40.5% Yamana Eldorado IAMGOLD New Detour 4.80 SEMAFO Yamana 1.35 Eldorado IAMGOLD New Source: Company Filings, Company Bloomberg 23

24 Comparable Analysis Cont d Comparable Analysis Historical EV/Reserves Ratio vs Peer Group Operating Profile 0.30x Precious Metal Peer Average DGC Leverage 0.20x Financial Profile Valuation 0.10x Investment Risks 0.00x x 16x 12x 8x 4x 0x EV to EBITDA Median 9.04x 7x 8x 8x 9x 10x 17x 18x DGC SMF ELD TRI IMG NGD BTO 30x 25x 20x 15x 10x 5x 0x Price to Cash Flow Multiple Median 8.22x DGC SMF ELD TRI IMG NGD BTO Source: Company Filings, Company Bloomberg 24

25 Comparable Analysis Cont d Comparable Analysis Operating Profile Leverage Financial Profile Valuation Investment Risks Debt Breakdown $500 $400 $300 $200 $100 $0 Ability to Refinance Debt $413 $426 $425 $431 $447 $400 $333 $ Q Q Q Q Q Q Q Q4 Debt Cash D/E Peer Average 67.1% 10.0% 22.8% LOC Amount Available Bond Principal 35% 25% 15% 5% -5% 28% 32% 34% 14% 16% 17% 18% 22% Average = 17.1% 2% 3% 3% THO IVN PAAS EDV ELD AGI DGC IMG NG BTO YRI

26 Investment Risks Cont d Comparable Analysis Operating Profile Leverage Financial Profile Valuation Investment Risks 2 2. Behind on Expected Production & Tonnage In 2016, Detour Lake only mined 66.4 million tonnes of the targeted 95 million tonnes 33. Operational Risk Increasing AISC Increasing Cost of Sales Fluctuating Price Expected VS. Actual Production Price / VIX Correlation 600,000 Expected , , , , , VIX Index Price $1,400 $1,300 $1,200 $1,100

27 Key Metric 2: Leverage Strengths Risks Low Cash Cost Producer Low cost jurisdiction Country Risk Operational Risk High Grade Ore Mining Friendly Jurisdiction Significant Property ownership Non-Producing Asset Shareholder Dilution High Grade Ore Strong Initial Drill Results Multiple Contraction Drilling Disappoints Private & Confidential 27

28 Valuation Target Price:$23 28

29 Valuation Target Price:$23 30%/$20 70%/$24 NAV Multiples Source: Company Filings, Company Bloomberg 29

30 E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E Valuation: NAV Operations Key Assumptions Realized Price ($/Oz) $1, Cash Costs ($/Oz) (without Maintenance/Expansion) $850 Capex(Maintenance/ Expansion) $100 AISC per Oz $950-$ Projected FCF Life of Mine ($mm) NAV Target Price $24.18 NAV 70%/$24 Net Asset Valuation Net Present Value (millions) $ Total Debt $ Cash & Equivalents $ Inventory $ Net Asset Value (millions) $4, Shares o/s (millions) NAV per share (Base Case) $24.18 Source: Company Filings, Company Bloomberg 30

31 P/NAV Valuation: Multiple Analysis WA Target Price from Multiple Analysis 33%/$21 33%/$21 33%/$19 EV/EBITDA EV/Reserves P/NAV Multiples Target Price $ x 20.0x 15.0x 10.0x 5.0x 0.0x Bear, Base Bull Case Scenarios EV/EBITDA EV/Reserves P/NAV 18.2x 18.0x 18.6x 21.0x 19.1x 21.0x 23.8x 20.2x 23.4x Bear Case Base Case Bull Case P/NAV Sensitivity Table NAV $ $ $ $ $ x $14.46 $15.29 $16.16 $17.03 $ x $16.64 $17.58 $18.57 $19.57 $ x $18.82 $19.88 $20.99 $22.10 $ x $21.01 $22.18 $23.41 $24.64 $ x $23.19 $24.47 $25.83 $27.18 $28.60 Source: Company Filings, Company Bloomberg 31

32 Conclusion: Investment Recommendation Stable Investment Leverage Acquisition Target Valuation Buy $23 32