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Written by 08:00 Analys, Research

SWEDISH STIRLING: Strengthens finances with unique climate compensation-linked instrument

In addition to an annual yield in of 7.25%, Swedish Stirling’s imminent preference rights issue also retain emission rights equal to an annual CO2-reduction of 100 kg per share, making it a both innovative and lucrative opportunity for investors to compensate for their CO2-emissions, not seen before. With the financing of the first pivotal project now on track to be secured we continue to see a fair value of SEK 15-22 per share in 18-24 months, with several triggers likely to drive a revaluation of the share.

Andreas Eriksson | 2022-09-14 08:00

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Green preference share issue underway
With the ongoing 10MW rollout of PWR BLOKs to Glencore Merafe’s Lion Smelter in South Africa, where Swedish Stirling has signed an energy conversion agreement to produce electricity from the ferrochrome smelters residual gasses, the financing is now on track to crystalize after the preference rights issue. The previously secured debt financing from South African bank IDC of SEK 96m will now be complemented by a green preference share issue of SEK 100m, with rights reserved to increase the offering by up to SEK 50m if oversubscribed. The subscription price of SEK 276 per preference share will annually yield SEK 20 paid quarterly with SEK 5 per quarter and share, corresponding to an annual yield of 7,25%. We see a good chance for Stirling to fill the issue as renowned names such as Glencore, Merafe and the af Jochnick family have taken the lead as anchor investors. Now also chairman and majority shareholder Sven Sahle made an application to acquire preference shares of a total of SEK 18,6m, financed by selling a block of his common shares to institutional investors. So far, we’ve seen a neutral market reaction to the news.
Value could exceed the offering
Since Swedish Stirling will be the owner of the technology at Lion Smelter they will also be the recipient of all the emission rights generated from the CO2 reduction the technology brings. Once the 10MW plant is fully operational, it will offset CO2-emissions by approximately 80,000 tonnes per year, generating 80,000 South African emission rights. The company’s plan is to retain emission rights equal to 100 kg per preference share which implies that an investment of SEK 24,840 (90 preference shares) equals 9 emission rights, and will fully compensate the carbon footprint of an average Swede. The South African market for emission rights is not regulated compared to its European equivalent, but there are signs that it could be in a not too distant future. A readacross from the EU trading scheme suggests that an investment of SEK 24,840 with the attached 9 emission rights, corresponds to approximately SEK 8,000, based on an average price of EUR 90 per emission right. Or in a wider scope, all the 80,000 emission rights generated annually equals an implied value of SEK 72m.
Focus on Lion Smelter, but not exclusively
Seeing Glencore, one of the largest mining companies in the world, as a lead investor in the preference rights issue, we believe underscore their confidence in the technology. While focus now will turn to delivering the 10MW to Lion Smelter, there are other potential triggers lurking about, with the recent comeback of Richard Bay Alloys, whom Swedish Stirling signed an LOI of USD 18m back in 2020, being one, partly offsetting the adverse development with the for now stalled negociations with Samancor. For now, our combined DCF and multiple approach continue to support a fair value of SEK 15-22 per share in 18-24 months.
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