Fox Marble Holdings PLC (LON:FOX) Chief Executive Officer Chris Gilbert caught up with DirectorsTalk for an exclusive interview to discuss the acquisitions of Green Power & Scope and what this means to the company & its shareholders.
Q1: Chris, you announced the acquisitions of Green Power and Scope, what can you tell us about the two companies?
A1: Let’s take them one at a time.
Green Power is a local Kosovan company set up 2013/2014 and it acquired the license to the Maleshevë quarry, the quarry that contains the silver/grey and the off-white, the Illirico Bianco marble. The purpose behind the structure of this is that this is an area in Maleshevë that we have explored, several different parts of the area.
So, we had a similar deal with another company to explore a quarry which we called M1 and then we had a deal with a different company where we sub-licensed from them the right to explore another part of that area called M2, both those trial pits were not very successful.
This is a very similar situation; Green Power was set up and acquired the rights from which we sub-license the right to quarry what we now call M3. Since 2015, when we announced that arrangement, we have been developing this quarry and, as it happens, this quarry has been very very successful and it’s now our largest quarry in Kosovo.
The material that comes from it is now in demand to the extent that we cannot fulfil and supply demand and when you and I last spoke we were talking about the fact that we’d raised this money to deploy more equipment into that quarry so as to satisfy the demand we have created around the world. That’s the relationship between Fox Marble and Green Power.
So, when the opportunity came along for us to acquire Green Power in its entirety, including this license, and to move up the food chain because this quarry is so successful and because the consideration is not large in relation to the quarry, we elected to enter into it. This is an agreement that we’ve now made with the owners of Green Power, who hold the quarry license, and we will be seeking shareholder approval for that at our AGM.
Q2: And what about Scope?
A2: Scope is, again, a local company set up that supplied us with equipment because we’re obviously very concerned about how much cash we deploy and because there is no such thing as a big formal leasing company in the region that will provide us with lease or HP financing facilities. This company that was set up basically granted us what is basically a HP agreement and supplied us with some of the key equipment in the factory, which we’ve talked about.
Again, the opportunity to acquire that company for a consideration paid in shares less than the outstanding sums that we owe under our HP agreement with them is an attractive proposition for us. We’re acquiring these pieces of equipment at a discount to the value of the HP agreement that we entered into a couple of years ago so again, it’s accretive for us and it seemed, because we have the opportunities at all, it seemed like a good time to do it.
Q3: Both of these acquisitions are in reducing costs and meeting the increased demand but at what point will you breakeven on the acquisition costs?
A3: Well, of course what we’re really doing from an economic point of view is we’re buying back a 20% royalty so were the quarry to generate €5 million worth of sales, our 20% royalty pay away would be €1 million obviously and that would equate to the value we’re assigning to the acquisition of this quarry.
Of course, it’s much more significant than that, first of all that would be one years’ revenues as the quarry develops and obviously, these are 40-year licenses so even if you do a seriously discounted DCF, this is a very very accretive acquisition.
It also gets us to be the license owners ourselves so it’s us in a direct relationship with the government who grant us this license and that’s much more desirable and puts us in a much more powerful position with regard to the quarry rights itself. Broadly speaking, it’s a very short payback time with respect to that.
With respect to Scope, as I say, we’re buying out our HP payments for shares which would’ve been settled over the next 2-5 years depending on which piece of equipment you’re talking about. Again, that’s on a DCF basis because it’s acquired at a discount to that rate, we feel that’s beneficial too.
Q4: How is the order pipeline looking at the moment then?
A4: We are very encouraged by the fact that the material that we are producing in volume out of the ground now, thousands of tons of Selene; that’s the silver/grey, Illirico Blanco; that’s the off-white and in our quarry in Macedonia; the Prilep quarry, our Alexandrian White and Alexandrian Blue, basically the demand for this material exceeds our capacity to supply.
As I said, last time we spoke, we were fixing that by applying the money that we’d raised to these two quarries to substantially and significantly increase our capacity for which we have orders.
So, it’s a nice problem to have, we’re solving it, we’ve solved it in Macedonia, we’re now solving it in Kosovo, and we look forward to be able to disclose to the market exactly what our sales are and what we’re achieving on a quarter by quarter basis.
Q5: Now, in the RNS, you said that this will benefit the company and its shareholders going forward, not only in respect to the elimination of the royalty costs but also in benefitting from the underlying of the quarry itself. Can you expand on that for us?
A5: I think, putting it simply, if somebody came to us and said we’d like to acquire the rights to this quarry, the first thing we’d have to say is we don’t actually own those rights, they’re owned by Green Power with whom we have an arrangement whereby we exploit the quarry, we collect the money and we divide it between us. So, we would only be in a position that of disposing of an income stream, a royalty stream basically which has a value, but these things are discounted because you’re a little further down the chain of title.
In acquiring the company that owns the license, that has the license directly with the government, we are now in a position to say to anybody, any third party, value this quarry on the basis of what it contains, and it contains a vast quantity of marble, it’s a 300 hectare site and we drill down 50 metres and we were still going in terms of how much marble was there.
So, we’re able to say, we could sell this quarry, the absolute right that the license grant us, and we can get fair value for this. When I tell you that a quarry in Macedonia which admittedly contains the same sort of marble as in our Macedonian quarry, and that’s different from our Selene marble in this quarry in Kosovo, the M3 quarry, but the quarry that’s neighbouring ours in Macedonia was sold recently for $90 million. Our market cap for the entire company is a fraction of that.
So, however you look at this, this is an immensely valuable asset that we have acquired for essentially €1 million worth of shares on current value. We think this is highly accretive for our shareholders and the company generally and we’re very pleased to have been able to conclude this.
Q6: The AGM is in June so we can expect news shortly after then but what else should investors be looking out for in terms of news flow over the coming months?
A6: Over the next couple of month, up to the AGM, Fox Marble Holdings will be announcing more of the significant sales that we are working on, that once they’re confirmed, once they’re locked in place so that we can fairly say this is a done deal, and those are the stories that we’ll be alerting the market to. We look forward to that and we’ve got a number of these in train and we expect to be in a position by the time the AGM comes around where people will have real visibility on the growth of this company.