10/11/12 SWC
$300m (+45m) sen unsec cb coming tonight from CS/WFC. Terms: 20 yr 1.75-2.25% up 47.5-52.5% (hyper), 7 yr full pctns. UOP=repay 1.875% cb/gcp. $1.4B mkt cap palladium and platinum miner. Bought marathon in 2010 (sold 25% to Mitsubishi) & will need $500m in funding to YE16, bought Altar in 2011 & will need much more capital (see Credit Color). We’d assume B & L+650. ADV = 2.35m, 01/14 & 01/15 leaps > 50iv, 2yr 90d 10/50ile = 48/56%. Hyper delta ~105 provides pctn on way down which negates a lot of –ve gamma w/weaker credits (default 2 zero = 21). Tough call btw 35 or 40 vol assumption so we’ll use both risky vs bond+option on a 7yr hyper is material so beware (we use blended). 40 evol theo = 107.6. 35evol = 103.1. Lots of variables but one thing is clear – BUY
Palladium & platinum miner producing mines in Montana & properties in Canada & Argentina
PF Cash $379m
PF Debt $336m
LTM EBITDA $141m
LTM FCF $67m
Leverage 2.4x
Market cap = $1.4B
Small US prod of palladium & platinum and recycler of platinum group metals. Auto is primary end market. Plans to diversify. Purchased Marathon, PGM/copper dev proj in Canada in late 2010 & Altar, copper/gold dev Argentina proj, in 2011. Both will need significant dev& capex. Sold 25% marathon to Mitsubishi for $95m 1Q12, will need add’l $400-$500m thru 2016 & much more for Altar. FCF to turn negative & will need more funding.
Our assigned spread L+650