16 Cent AAB Has 46 Cent (NAV) & Provides Leverage to Desert Lion IPO

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Aberdeen International (AAB.T  16 cents)

www.aberdeeninternational.ca

Shares Outstanding: 96 Million / Market Cap $15 Million

Estimated Fair Value of Private Investments                       $10,500,000

Net Asset Value (NAV) of Liquid Investments                     $31,560,000

TOTAL = $42,060,000

 + 1% net smelter return royalty in Potasio y Litio de Argentina SA (PLASA) – valued at $2 Million

TOTAL ESTIMATED NAV = $44 Million = 46 cents per share

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Aberdeen is an investment company and merchant bank focused on microcap companies in the mining and metals sector. AAB is an attractive way to speculate on microcap stocks without incurring excessive risk – similar to investing in an ETF or Mutual Fund.

Pinetree Capital (PNP:TSX) used this model for years – but very poor management destroyed shareholder value as they took on massive debt to grow – and then resource stocks imploded. For years it was a recipe for disaster (taking on all that debt with high risk equities). Mid 2016 they consolidated and restructured with new management but they were the blue-print of how NOT to run a microcap investment company.

These microcap merchant bank / investment companies typically trade at a 50% discount to their net asset value (NAV) – which should be valuing AAB closer to 24 cents/share.

 

aberdeen balance sheet

aberdeen

Current (10/18/17) Market Value of AAB Public Investment Portfolio

Black Iron (BKI.T)              10.98M                 .12                          $1.32M

Blue Sky Energy (BSI.V)  4.16M                   .45                            $1.87M

Euro Sun (ESM.T)             368k                       1.38                        $510k

Fura Gems (FUR)             11.68M                 .40                          $4.67M

Trigon Metals (TM)         2.82M                   .41                          $1.15M

Lithium XLIT (LIX)             6.05M                   1.95                        $11.8M

Pitchblack (PIT.H)             983k                       .41                          $400k

QMX Gold (QMX.V)        10M                       .25                          $2.5M

Sulliden Mining (SMC)   374k                       .25                          $100k

Valencia  (VVI.H)              1.7M                      .14                          $240k

TOTAL MARKETABLE SECURITIES VALUE – 10/19/17          $24,560,000

Net Cash & Receivables                                                          $  7,000,000 *

Net Asset Value (NAV) of Liquid Investments              $31,560,000  (33 cents/share)

aberdeen

Estimated Fair Value of Private Investments                      $10,500,000 **

Net Asset Value (NAV) of Liquid Investments                    $31,560,000

                                                                                                           $42,060,000

+ 1% net smelter return royalty in Potasio y Litio de Argentina SA (PLASA) – valued at $2 Million

TOTAL ESTIMATED NAV AFTER ROYALTY = $44 Million  = 46 cents per share

** DESERT LION ENERGY (DLE)

In Aberdeen’s Q1/17 financial filing, Desert Lion was shown as 2523701 Ontario Inc – with a cost base of $600,000. In Q2/17, they disclosed that the investment name was Desert Lion Energy with a Fair Market Value of $ 5,460,000.

“The valuation was based on a recent financing, management has determined that there are no reasonably possible alternative assumptions that would change the fair value significantly as at July 31, 2017.”

Desert Lion looks like a VERY promising Lithium play in Africa, and given the strength of the sector and the high valuations, this could be a valuable investment for them in 2018.

http://desertlionenergy.com/ – the first large scale lithium mine in Namibia

http://desertlionenergy.com/about/about-us/

“The team is supported by Forbes & Manhattan and Pella Resources as major shareholders and strategic partners with a proven track record of delivering value to shareholders” [note that like Aberdeen, Forbes & Manhattan is controlled by Stan Bharti – reference notes below]

IMPORTANT DEVELOPMENT OCTOBER 16TH – RELEVANT TO AAB’s INVESTMENT IN DESERT LION

Aberdeen is horrendous at corporate communications (investor relations) so it doesn’t surprise me that nothing was released concerning this. The only reason I caught the news, was because I had a news tracking alert on “Desert Lion Energy”.

Desert Lion is going public through the reverse takeover of Camex Energy (TSXV listed CXE.H – Halted). The news is available here:

https://globenewswire.com/news-release/2017/10/16/1148030/0/en/Camex-Energy-and-Desert-Lion-Energy-Enter-Into-Amalgamation-Agreement-to-Complete-Reverse-Take-Over.html

Not only will taking Desert Lion public solidify the value of Aberdeen’s investment, but we could see significant growth in their valuation through 2018 as they appear to be a formidable player in the lithium industry.

Throughout 2017 the market has not paid any attention to AAB and because Desert Lion is a private company, few were willing to recognize their value in Aberdeen’s portfolio. Taking the company public will change that.

I don’t know what percentage of Desert Lion Aberdeen will end up owning, but it should be material as Desert Lion (as part of this “go public process”) is raising $13 Million at $1.82 – so the overall company valuation should be high once they start trading.

lithium

** AFRICAN THUNDER RESOURCES

The market has also given Aberdeen ZERO value for this private company investment – a PGM (platinum and palladium) project in South Africa that in 2015 they paid $15 Million for. But the PGM sector has struggled and this has turned out to be a poor investment.

On Sept 13th it was announced that this project would be disposed of. The acquiring company is going public with some other assets so AAB will end up with shares in the pubco but there is also a cash payout option involved. It is detailed here if you wish to review it:

http://www.aberdeeninternational.ca/News/News/

When the smoke settles, it appears we can realistically assign a value of about $5 million to this (likely a liquid investment for AAB in 2018). It was a very poor investment on the part of Aberdeen but at least now, there is an exit strategy that can be quantified. Because there was no value for this factored into the share price of AAB, we can now realistically assign it a few pennies. Which from the mid teens, is still worth something decent to Aberdeen shareholders.

IR Incompetence and Insight on Their Chairman, Stan Bharti

Aberdeen puts no effort into corporate communications. Even their PDF corporate presentation hasn’t been updated since July 2016. Their lack of professional corporate communications is a very poor reflection on management – in fact, it borders on incompetence. If you cannot keep your website current, shareholders (and potential investors) question what else the company is complacent (incompetent) at.

http://www.aberdeeninternational.ca/Investors/Presentations/default.aspx

Stan Bharti as Chairman is also an issue because many Canadian investors / brokers are aware of his reputation. Very successful on one hand, but then their group is also well known for charging painfully high management fees to the companies they invest in. I know many people who will not touch a stock he is involved with.

I don’t know him personally and while he has his faults, he has also been incredibly successful and he will stand up (adamantly) for what he believes in and to defend shareholder rights. I sure don’t agree with the high management fees, but I commend him for the activist role he has taken against public companies that have wasted shareholder money foolishly. Although, many might argue that is the “pot calling the kettle black”.

His control over Aberdeen is just something an investor needs to be aware of – more so because it helps explain part of the reason AAB trades at such a steep discount to net asset value.

This article from 2013 helps sum up his “street reputation”

 http://business.financialpost.com/financial-post-magazine/canada-proxy-battles/wcm/8c8faa30-873c-4c32-a438-f888056f9898

“Stan Bharti never wanted to be looked at as the bad guy, much less the Proxy Fight Guy. And he doesn’t think its fair he’s been saddled with both reputations. In a meeting room in his pristine Toronto office, Bharti’s demeanor grows increasingly frustrated as he tries to make sense of the negativity surrounding himself and Forbes & Manhattan, his highly successful merchant bank, which finances and nurtures junior mining companies. He knows what people across Bay Street are saying about him, and he stings from the negative things that have been written about him in the press: That he siphons cash away from the companies in the Forbes group with ridiculous consulting fees. That he hands out mammoth bonuses to employees and management teams for no good reason. That he has established a new benchmark for over-the-top change-of-control payments”  [Excerpt]

Offsetting the negatives, is the following background information that explains his success.

https://en.wikipedia.org/wiki/Stan_Bharti

http://www.forbesmanhattan.com/

ceo

Additional (Important) Points Worth Noting on Aberdeen:  

1) July 11th AAB closed the sale of their remaining lithium interest in Potasio y Litio de Argentina SA (PLASA). This was sold to Lithium X for $5M cash and 6M LIX shares. Lithium X (currently valued at $1.95/share) will issue to Aberdeen an additional 3M shares if, during the three years following closing, the volume-weighted average trading price of Lithium X common shares is $3 or more for a period of 20 consecutive trading days.

2) After the closing of Q2 financials, Aberdeen used $1M of the $5M (from above) to acquire a 1% net smelter return royalty in PLASA (Aberdeen believes it will be proven to be worth well more than $2M after a feasibility study on PLASA is released). In addition to the $1M cash, they issued 7.14 million shares of AAB stock.

3) Last year Aberdeen had a normal course issuer bid (share buy-back program) in place and repurchased / cancelled 6.6 million Aberdeen shares. This was renewed (approved) in July and while they have yet to purchase any shares under this program, it can be used by the company to support the share price. The maximum number of shares that could be purchased under this program is 6.3 million with a maximum of 16,608 per day – excluding block trades.

4) They have a strong board of directors:

http://www.aberdeeninternational.ca/Corporate/BoardofDirectors/default.aspx

CONCLUSION

Investing in Aberdeen is nothing more than buying a basket of deeply discounted microcap resource stocks. The idea is to get paper as cheap as possible and then speculate that (over 12 to 18 months) the underlying shares will either remain stable, or appreciate in value – and that the share price will then rise closer to 50% of the NAV value, or 24 cents per share. This would produce a gain of 50% – without incurring excessive risk.

If their portfolio stocks perform better than [minimum], or Desert Lion Energy performs very well in 2018 as a public company, then a person could target a gain closer to 100% (or more).

Just remember that Aberdeen has BIG exposure to Lithium – so you need to be confident that lithium will continue to perform well.

Many countries will phase out internal combustion cars over the next few decades and the global lithium-ion battery market is expected to witness annual growth of 14% between 2017 and 2022 with sector revenue of almost $70 Billion by the end of 2020. Tesla’s Gigafactory for lithium ion batteries should hit full production capacity in 2018.

Lithium is up 58% this past year and is one of the strongest performing commodities. With the continued emphasis on electric vehicles worldwide, it “should” be a solid portfolio strategy as many believe lithium will eventually be traded as actively (if not more) than oil.

 

lithium