STHC - Future Share Price Estimate





Regarding Southcorp Capital, Inc (STHC) and the recent news, please refer to the previous post. That post goes in depth to the pros of buying into STHC. This post is to set an evaluation of the price. Please note that we are not financial advisors. We just want a fair assessment of the price that STHC should be set at. We also have shares in $STHC. The price may also fall outside this range. Make sure to look at all financial data yourself as it becomes available. Again, this is not financial advice, just my opinion.

TL;DR: Price range of $2.15 - $6.00

Some things to note before I go into the price target, my undergraduate degree was in mathematics and my masters degree is in STEM Education, so I understand many of the concepts that go into the maths behind stock evaluation. However, no matter how much data we have, stocks are always driven by investor attitude and speculation. So while we may have an estimate that seems fine on paper, it can always come in much higher than expected, or come in lower. This post is just to show where we see the price going, why it is going there, and possible variables that I did not calculate (and why).
There are key definitions to consider, which I will lay out here:

Definitions

Authorized Shares (AS): These are the total number of shares that the company has. In the case of STHC, this is 750,000,000 shares.

Outstanding Shares (OS): These are the total number of shares that are sold to investors and are a part of the Authorized Shares. For STHC, this is 369,462,271 shares. This is the more important number, and is what is used when valuing the price, as these are the actual shares that are traded during market hours. Stock float also affects the price, but with STHC, the last figure I found was from 2015.

Restricted Shares: These are the shares that are not available to be traded as per the company guidelines. STHC has 80,065,045 restricted shares.

Unrestricted Shares: Shares with no restrictions on them. STHC has 289,397,226 shares. Note that the float (discussed below) is much less. 

Float: A stock's float is the actual number of shares available to trade. This is taken by subtracting any restricted shares, like those locked up by insiders, from the Outstanding Shares. For STHC, the last update I can find was from February of 2015 and it was 29,051,699 shares. As I can not find anything more recent, this will be the figure used. This means the float is ~7% of the Outstanding shares. This means high volatility and faster movement one way or another. To understand how few shares this is, I am aware of two people who collectively own about 4 million shares, which means they have about 13% of the available shares to trade currently. This means that demand will be very high and the volatility also be high. While float is more about the volatility, it's important to keep in mind when trying to buy shares, as the price will rise quickly as more people hold.

Market Cap: Total value of all the company's shares. This is calculated by multiplying the Outstanding Shares by the price of one share. As of January 15, STHC had a market cap of $45,480,806. This essentially means the company is "worth" this much. Remember, however, that STHC is completing a reverse merger with Ameca Mining. This means that the market valuation will be going (considerably) up as they increase revenue streams.

Earnings Per Share (EPS)
This is where speculation really starts to come into play. On one hand, we have STHC, which is essentially a shell that is taking in Ameca Mining. On the other hand, we have Ameca Mining, which does not have any public EPS. This means we need to rely on data that is provided by them through investor comments, as well as standardized industry models to find an EPS that fits Ameca Mining.
Ameca Mining lists the following resources as their main focus: Gold, Platinum Elements, Rare Earths, and Graphite. Realistically, it is the Gold and Graphite that I will be looking into, mostly because that is what the company broadcasts the most about.

Graphite

By far the most lauded point of Ameca Mining by the Twittersphere is their "$4 Billion in Graphite Deposits", and rightly so. This seems to be the bread and butter of their Sri Lankan based mining plans. Here are the figures direct from Ameca Mining's website.















Their mining deposits seem to be superior to what is commonly found in Sri Lanka, with most of it being the "high grade". The high grade is highly desirable for electric vehicle lithium-ion batteries. While batteries are trying to be changed, the reality is that for the next decade, graphite will still be used in the production. However, low grade is also used in many industries, as well.

In an investor's highlight from last year, here is what they said about their economic case of the graphite they have:



The key point here being these figures are "based on only 15,000 tonnes of graphite production/year, projected annual EBITDA of $19 million and an 84.7% IRR over 15 years." (EBITDA meaning Earnings Before Interest, Taxes, Depreciation, and Amortization and is a metric used to evaluate a company's operating performance).


This lines up well with it being ideal for the growth of EV batteries, as well as the fact they can output this graphite at a decent rate.

*Note: this is where I will mention that Saint Jeans Carbon, Inc. has agreed to an off-take agreement with Ameca Mining, which essentially means they are legally required to buy a minimum amount of 7500 tonnes of graphite annually. Also, per the Ameca website, there are off-take agreements on the table with Indian companies.


Also note that 70% of graphite production is from China. Also, the "flake" graphite is what is needed for EV batteries, which China does not have much of. This means any new deposit located outside of this regime would be a much better source of graphite for both political and economic reasons.




So, to determine the industry growth potential, I referred to New York University's own "PE by Sector" report.

First, let's look at the mining sector. This is a broad term, but it is where Ameca Mining would be placed. They have a "forward PE" (one year projected) of 41.86, which is up significantly from the current PE of 30.21.

Next, I looked at the growth EV batteries, in general. This year, the industry was $35 billion. But it is projected to be $133 billion by 2027. This means there is a compound annual growth rate in the EV battery sector of 18.05%

Gold

As stated on their website, Ameca Mining is a "gold exploration company". And the details of their work are linked. One thing to note, however, is that they did not release their fire assay results, which were due in September of 2020. This means it was quite hard to figure out the potential. Also, regarding the recent "Four Gold Deposits Found" in Sri Lanka news, it seems these were exaggerated and will be discounted, in my opinion. Note: These were not reported by Ameca Mining, but I saw some people on Twitter start throwing this around. Just know that while Ameca Mining does do gold exploration globally, there were no new gold deposits reported by them, that I am aware of.

The Brass Tax

Now onto calculating the future share price. To do this, we will first look at the equation to calculate PE, which is by taking the share price and dividing it by the EPS. In this case, we have the PE and we have the EPS, so we rearrange the equation and multiply the PE by the EPS to find the share price.

The PE of mining, as stated above, is 41.86, which is a very conservative estimate. So we will keep this on the "low" range. By including the 18% annual compounded growth of EV batteries and other graphite specific industries, I have placed the "high" end at 50.86. This is based on an 18% growth (8 points), as well as their other resources that I could not accurately account for, such as gold (8 points). The latter is most likely even higher with the gold industry alone increasing over 3% just this year.

The EPS of Ameca Mining, which is a bit tougher to determine, as there are no financials easily available other than the $19,000,000 in annual revenue they list in their Investor's Highlights. But this is just for the graphite and does not take into account their three other resource streams of gold, rare earths and platinum elements. So calculating an EPS is difficult as we can only see the low end, at this time. Thus, to give a fair rante, I have calculated an EPS for just the graphite figure of $19 million, but also a rough estimate including their other sources of resources. For the "graphite only" EPS, we simply divide the 19,000,000 by the number of Outstanding Shares and we get an EPS of $.0514. (This is not share price)

For a more generous EPS that includes a rough estimate of their other income sources, we have to assume what their revenue of the other resources are. This will help give a "high end" estimate of where the price can range. If Ameca Mining was just a graphite mining company, then the $19 million figure would be enough. But as they were primarily a gold exploration company, it only makes sense that they have a revenue stream that will raise the EPS. I looked at a recent profit share agreement located in one of their mining districts worth $1.5 million. While this agreement is between two separate entities, the fact that it was on Ameca Mining land means they will have received payment for this somehow. Again, there are no public financials, so everything is truly a guess. I will showcase various EPS' to reflect a higher end range for STHC.

So let's look at our expected share price range (PE x EPS):

Graphite only revenue stream:
Low End: $0.0514 x 41.86 = ~$2.15
High End: $0.0514 x 57.86 = ~$2.97

Including other revenue streams:
If annual revenue is $25,000,000, EPS is $.0677
Low: ~$2.83 High: ~$3.92

If annual revenue is $30,000,000, EPS is $.0812
Low: ~$3.40 High: ~$4.70

If annual revenue is $38,000,000 (i.e. graphite is half of their revenue), EPS is $.103
Low: ~$4.31. High: ~$6.00

This means that the price range can easily fall anywhere between $2.15 on the low end and $6.00 on the high end.

This also does not include other resource streams, which could push it even higher.
This also has an PE of 41.86 - 57.86. The actual PE can be even further outside of these ranges.

Finally, this does not include any other information that has not been released, which will further affect the price.

Once the merger is officially announced, the push by retail investors will be even higher (as can be seen on Twitter, Reddit and other social media posts with just the company information changing to match America and STHC. I personally believe the FOMO of this stock and low float can easily blow past any projected price range here.

In the end, I highly suggest you research the financials yourself, look close at the share structure of STHC, and not fall into FOMO, but rather buy based on your own research. After the push from 3 cents to 12 cents, I am still holding my position and won't even consider selling any time soon. I can not time markets, so I will just hold as I have been for the past few months.

As new information is available to us, we will update this page to reflect it. And remember, I am not a financial advisor by any means, and this is just to show the price estimate that we see STHC going to in the future after the reverse merger with Ameca Mining.

Below are some resources that I pulled information from, but also the hyperlinks throughout this document also contain relevant data points.

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