Given SNU's earlier well publicised governance failures, debt concerns and the exorbitant interest rate it is being charged owing to the recent breaches of its debt service cover covenants, a deeply discounted rights offer totalling some R500m was widely anticipated by the market - R400m is due to its banking consortium at the end of Nov. On Monday, however, the company unexpectedly announced that it had found a buyer for its 49.9% interest in the Koornfontein mine for which it would receive R686m (regarded as fair value). This would thus eliminate the need for a capital injection and the resultant equity dilution. Now, while the purchase is subject to a due diligence, Investec has in the interim committed to underwriting the issue should the purchase fall through to allow SNU to still meet the Nov deadline. This led to an understandable uptick in the share price and consistently strong volumes ever since. At 330cps, SNU is nonetheless trading at a near 60% discount to tangible book value of 795cps. An earlier SENS has advised that owing to difficult trading conditions in the mining industry and onerous interest charges, earnings this year are expected to decline by some 60% to +- 50cps (PE of 6.5x). SNU has addressed its multiple legacy issues and should the sale of the colliery indeed proceed as planned, the current price presents a superb entry on a 12 to 18-month view as its recovery would be aided by improved mining conditions, reduced gearing and substantially lower interest charges. Omo. Use it, don't..
