SBM - Ex-distribution of GMD shares

Forum Topics SBM SBM Ex-distribution of GMD shares

Pinned straw:

Last edited one year ago

06-July-2023: St Barbara (SBM) went "ex" today for the 205 million GMD shares that they are going to distribute next week to their SBM shareholders - those registered as SBM shareholders tomorrow, being the record date for the distribution.

SBM currently have 817,841,645 (817.84m) shares on issue, and they said (see here: Sale-of-Leonora-Assets-complete-and-GMD-share-distribution.PDF) on Friday (30-June) that SBM shareholders can expect to receive approximately 0.25 GMD shares for every SBM share they own (or 1 GMD share for every 4 SBM shares they own) on the record date, which is tomorrow, Friday 7th July, meaning that anyone buying SBM shares today misses out on that distribution from SBM of GMD shares because the T+2 trade settlement rule means that shares bought/sold today change ownership officially on Monday (10th July), being the second trading day after the date of sale. Therefore, to be on the SBM share register tomorrow (Friday) and qualify for the GMD shares, you would have to have bought the SBM shares before today (Thursday), so yesterday (Wednesday 5th July) or before.

And there were plenty of people who do want to own GMD, but no longer want to hold SBM shares, because a total of just over 78 million SBM shares traded hands today, and their volume is usually under 20 million (shares traded) per day.

Those people who sold all of their SBM shares today will still get their GMD shares, but those who bought SBM shares today will not, due to today being the "ex-distribution" day for those GMD shares.

That would be why the SBM share price almost halved today from 56 cents/share (yesterday's close) to a close of just 29 cents/share today, only a couple of cents above their low of the day (which is also their low of the year), which was 26.5 cents/share.

Funny thing is, if you look at their share price graph (see below), they actually went up today!!

What?!?!

That is because all of their previous price history has been adjusted for the capital return, which is what this distribution of GMD shares is being classed as.

To explain, GMD (Genesis Minerals) closed at $1.265 yesterday, and $1.19/share today. Based on yesterday's close, the value of the 205 million GMD shares that SBM are giving to their shareholders is $259.325m (and is $243.95m based on today's close).

SBM's market cap yesterday was $458 million, being 817,841,645 shares on issue times $0.56 (their closing share price yesterday). The logic is that SBM are returning GMD shares worth $259.3m to their shareholders, which theoretically reduces the company's (SBM's) remaining value by that amount, which is 56.62% of their market cap. Therefore, all share price history has been adjusted down by that percentage for the purposes of their share price graph, or by close to it (between 56.3% and 56.6%) as per below:

While SBM actually closed at 56 cents/share yesterday (Wednesday 5th July 2023), the graph now shows that close to be 24.4 cents/share, being 56.4% lower. On June 23rd through to June 28th, the SBM share price closed at 46 or 47 cents on each day. Those days are now shown on the graph as either 20 or 20.5 cents. The prices on the graph - except for today's closing price - are all now around 56.5% lower than they were yesterday. I've explained the rationale behind the adjustment a little further in that commentary to the right of the share price graph above. If you can't read it, it should get bigger if you click on it - in the PC version at least, not sure about the App.

In summary, around 56.5% of SBM yesterday was made up of the GMD shares that they held (based on GMD's share price vs SBM's market cap), and those GMD shares are now no longer part of SBM - they now belong to SBM's shareholders to do with as they please, so the reality is that the other 43.5% of SBM, being the part that is left, should be trading at around 43.5% of yesterday's closing price - which was 56 cents/share (the actual closing price - not the one on the graph which has been adjusted), and 43.5% of 56 cents is 24.4 cents (24.36c), and SBM closed at 27 cents, so they have actually gone up, as shown on the graph, after also rising yesterday and on the previous 3 trading days.

That said, I still intend to sell my SBM shares at some point in the next month or two, and I'll likely keep my GMD shares (the ones I'll receive next week) for the timebeing, and may add to them and build that holding into a decent position relative to my other holdings.

I like Genesis Minerals from here, and I'm not nearly so keen on St Barbara now that all of their gold-producing assets and the vast majority of their non-producing assets are overseas (in PNG and in Nova Scotia, Canada) rather than here in Australia. I'm bullish on the Leonora area of WA, therefore I'm bullish on Genesis Minerals, who have all of their assets around Leonora -and I'm expecting them to buy even more assets in that area over the next few years. Having watched Raleigh Finlayson build up Saracen Minerals, then merge Saracen with Northern Star (NST) and then start again with Genesis, I wouldn't bet against the man.

Image Source: https://stockhead.com.au/resources/diggers-and-dealers-will-raleigh-finlaysons-genesis-dance-the-devils-tango-with-st-barbara/ [August 2022]

Bear77

Added one year ago

To add to my straw about the large (-48%) decline in the SP of SBM on Thursday 6th July due to that day being the "ex-distribution" day for the distribution of GMD shares to SBM shareholders that was in effect a capital return... the Dhaka Tribune (from Bangladesh) put it this way: https://www.dhakatribune.com/financial-markets/2023/07/06/st-barbara-asx-sbm-drops-45-while-making-shareholders-much-richer

Click HERE for the whole article.

There has been value added for St Barbara shareholders by the sale of their Leonora assets and the distribution of GMD shares to SBM shareholders.

While SBM closed up +1 cent (@ 27.5 cps) today, being +3.77%, GMD shares closed up 7 cents, or +5.83%, at $1.27, and if you held 10,000 SBM shares on 30th June, that position was valued by the market then (@ 48 cps) at $4,800. On July 5th, the last day that SBM were "cum-distribution-of-GMD-shares", SBM closed at 56 cps (cents per share), and those 10,000 SBM shares were valued by the market at $5,600. That 10,000 shares would now be worth just $2,750 based on SBM's closing price today (of 27.5cps), but if you held those 10,000 SBM shares on July 5th or before (and had not sold them), you would also now own at least 2,506 GMD shares worth $3,182.62 based on GMD's closing price today (of $1.27/share), so the combined value (your SBM + GMD positions) would be worth $5,932.62, or the pre-distribution equivalent of 59.32 cps.

And I say "at least" 2,506 GMD shares because while the ratio should have been 25.0667% GMD shares for each SBM share held at the record date, in one of the real life portfolios that I manage, we actually received almost twice that much, in percentage terms, so just over 1 GMD for every 2 SBM held (0.5006 to 1 ratio), whereas in my super I received the correct ratio (0.2506 GMD shares for every SBM share held). I had already exited SBM in another portfolio, some months ago. Here on SM, those holding SBM on that record date received an automatically reinvested dividend (capital return) rather than a distribution of GMD shares. However, the MINIMUM that people would have received in real life was 0.250667 GMD shares for every SBM shares held.

Today, I sold all of my SBM shares, both here (at the closing price of $0.275/share) and in my largest real life portfolio (at $0.27/share). I still hold them in my super account (SMSF through CBUS) but I will likely sell those too tomorrow or shortly. I intend to build up my GMD position in my largest real life portfolio and stay away from SBM for the time being, although I will monitor their progress in PNG and Nova Scotia. I also intend to buy some GMD here in SM. I think they will do very well over the next decade, if they last that long. Based on what happened to Raleigh's last gold company, Saracen Minerals, I wouldn't be surprised to see them taken over by a larger player at some point. I very much like the idea of a gold company that is 100% focused on a single area (Leonora) in one of the best and safest goldfields in the world (the WA goldfields around Kalgoorlie). And that's exactly what GMD is. I wouldn't be betting against Raleigh Finlayson. He tends to usually be on the best side of all the deals he is involved with.

Bear77

Added one year ago

15-July-2023: Additional: Just to update that straw/forum feed. Last week, I mentioned in my reply to (or comment on) that "Ex-distribution of GMD shares" straw of mine that one of my RL portfolios received almost twice as many GMD shares than the other one did. This was due to two allocations to the same account instead of one (interestingly, one was for 10 more shares than the other, so they weren't identical). Late in the week they reversed one of those allocations, leaving us with the correct ratio of GMD shares (0.25067 GMD for each SBM share held). It will be interesting if people had on-sold those extra shares they received, because reversing the transaction becomes problematic if the shares aren't there any more. Anyway, just thought I'd update the straw to mention that I did not end up with more than I was entitled to - by the end of the week.

Final update: On Friday I sold the last of my SBM shares, which were in my SMSF, but because that's in an industry super fund, and GMD is NOT in the ASX300 index, the fund would NOT allow me to top up my GMD position. I can sell the GMD I received, but I can't buy any more. No matter, I'll keep those GMD in that PF and I've already added to the GMD position in my other larger portfolio (where there are no restrictions), so my plans are the same, i.e. to stay away from SBM and to remain invested in GMD instead for the time being.

SaberX

Added one year ago

Catching up on the post SBM deal now that GMD succeeded and battled off SLR. Interesting you still hold and see further upside over other opportunities by remaining in GMD.

Confused those on the SMSF part versus industry super fund comment on not allowing GMD too ups being outside the ASX 300? If it's a SMSF I thought you'd be able to invest provided it was within the SMSF underlying strategy ?

Bear77

Added one year ago

Hi @SaberX - to answer your query about my SMSF. Some wouldn't call it an SMSF because it's really an industry super fund allowing members to choose where they wish to invest up to 80% of their capital within that fund, with rules, and the rules are the strategy, so there's no cost in setting it up, or ongoing audit or annual costs, just the low monthly fees that the industry fund charges.

A small number of the larger industry funds now offer this service, because it keeps members' capital within the fund rather than having people take their money out and set up their own standalone SMSF. An industry super fund is a fund that has been set up through the industry employers association(s) and union(s) working together, and both sides have representation on the governing Board and associated committees within the fund. The main difference is that the shareholders are the fund members, so there is no mandate to make profits from fees to pass onto others, the fees just need to cover their own running costs, which is why the fees are lower than retail super funds run by corporations like AMP.

So the advantage to those industry funds in offering this service is that they keep the capital within the fund and the larger the fund the lower the fees are from their own service providers, so to give one example, they can play insurers off against each other to get the best insurance deals (for members' employment insurance, life insurance, and TPD insurance). They are also able to negotiate lower fees in percentage terms from third party investment managers that they use for portions of their FUM.

The advantage to members is they can do most of what they could do within a traditional standalone SMSF, but without the associated costs. So control of a good portion of their own super without excessive fees. It suits people who are in accumulation phase who have a moderate super balance. I think once you go over around $1.5 million it might be cheaper to run your own standalone SMSF outside of an industry fund because of economies of scale, and because the industry super funds charge a reasonably low monthly fee which is a percentage of your balance and that would become significant if your balance was high enough. I think for balances under $1m, there are cost advantages to using an industry fund, which is why I do it.

The Industry Fund's investment rules for members are set by a committee that each fund has that is made up of representatives of the industry unions, employers, and finance professionals. Because people are not required to make their own rules, the fund wants to have rules that protect people from excessive risk, such as putting all their eggs in one basket, or investing is speculative companies that could easily go to zero. Some of the common rules are:

You can only invest up to 80% of your fund's balance within that "Members Choice" discretionary section; and those funds can grow and exceed 80% due to capital appreciation, but you won't be able to do more purchases of shares while 80% or more of your total balance is invested in directly chosen shares. The other 20% has to be invested in one of the following: One or more of the fund's investment strategies (such as high growth, growth, balanced, conservative, etc.) and/or cash, and/or other managed funds that the industry fund offers - mine (CBUS) offers two managed funds, CBUS Property and CBUS Infrastructure, and I have chosen to invest in both. The Infrastructure Fund has provided much better returns than the Property Fund (which is 100% commercial property, mainly office buildings in major capital cities).
You can invest up to 20% of your total balance in any one single ASX-listed company. Again, that weighting can exceed 20% due to capital appreciation, but you won't be able to add to it via further share purchases until it represents less than 20% of your total balance. To be clear, there is no limit on how many companies you can invest in (as long as they all meet the other rules), however each one of those exposures must not exceed 20% at the point that you are adding it or topping that position up.
You can only invest in ASX-listed companies, and only if they are in the ASX-300 Index (which of course includes all of the ASX200 and ASX100 indices). Outside of those 300 companies, you can also choose to invest in ETFs/ETPs as long as they are on an approved list for that particular industry fund. The funds have been growing those lists in recent years to include more ETFs and ETPs (Exchange Traded Products, such as a physical gold-backed ETF), but there are still some big ETFs absent from many of these lists, so that is certainly something to consider when weighing up the pros and cons of doing an SMSF in this way.

That second rule (the "20% rule") is all about risk management and Andrew has also adopted it here on SM, so the same rule applies here.

Some Industry Funds might now have extended their "allowable investment universe" beyond these limits, such as now including major global companies that aren't listed on the ASX, but I haven't heard of that, and my fund, CBUS, which is the second or third largest Industry Fund in Australia hasn't extended yet. If I want to invest in overseas shares, I have to do it through an approved ETF. I can also invest in a manager like MFG or PTM (because both are in the ASX300 Index) but not the funds that they manage (because those Platinum and Magellan funds are not in the ASX300).

Australia's largest Industry Super Fund is Australian Super - and they call this "self-managed" option "Members Direct", see here: https://www.australiansuper.com/investments/your-investment-options/member-direct

CBUS call theirs "CBUS Self Managed" - see here: https://www.cbussuper.com.au/super/my-investment-options/cbus-self-managed

Hostplus Super (an industry super fund set by the hospitality industry) call theirs "ChoicePlus" - see here: https://hostplus.com.au/members/our-products-and-services/investment-options/your-investment-options/choiceplus

Not all Industry Super Fund offer this service. One of Australia's largest Industry Super Funds, Aware Super - which was originally set up for NSW Public Service Employees but is now open to everybody - does not allow this level of self-management within their fund - however they offer 14 different investment strategies for their members to choose from, and you can mix and match, and also make regular changes to the mix if you wish - see here: https://aware.com.au/member/what-we-offer/investments/unit-prices

Another Industry Fund, Australian Retirement Trust (or ART, which was formed through the merger of Sunsuper and QSuper and has over $240 billion in FUM on behalf of more than 2.2 million members) does provide a "DIY" or "Choose your own investment strategy" option, however it is not yet at a level that allows you to choose individual companies to include in your portfolio (like Australian Super, CBUS and HostPlus do) - instead, similar to Aware Super, ARF allow you to choose between 10 of their investment strategies - see here: https://www.australianretirementtrust.com.au/investments/options/diy

They have no membership restrictions. For instance, my fund was set up by the Construction and Building Unions originally (and once stood for Construction and Building Unions Superannuation), but the unions now have equal representation on the Board with the Employers' Associations, however you do NOT need to work in those industries to join or remain a member. I work in food manufacturing now, but I'm still with CBUS. I did try Australian Super for a few years but went back to CBUS because they had a better (larger) offering of ETFs and managed funds at that time.

So I refer to that as my SMSF because it's my Super, in a Fund, and I Self Manage it, so that's why I regard it as my Self Managed Super Fund. It just has more restrictions than a traditional standalone SMSF, but lower costs.

Here's a little more reading, from HESTA (another industry super fund): https://www.hesta.com.au/campaigns/smsfs#whatsthedifference [Major Super Fund vs. SMSF: Running a superannuation fund is a big job. Is it something you should take on? Let's look at some of the differences of being with a major fund like HESTA versus a self-managed super fund (SMSF).]

Plus: https://www.hesta.com.au/stories/ivans-story

HESTA was an Industry Fund set up for Health and Community Services employees, and they do not provide members with the ability to invest directly in individual companies chosen by those members, but they do offer a range of options to mix and match within, and they have consistently been among the top performers within the industry, usually outperforming larger funds including many of the leading corporate-run retail super funds. Similarly to Aware Super, they do highlight their green credentials (or environmental responsibility awareness) as well, as you'll see if you click on this link and scroll down: https://www.hesta.com.au/about-us

So, Horses for Courses, different solutions will suit different people. Having my SMSF within an Industry Fund works well for me, despite the restrictions. Mostly because of its size (sub-$1m).

Further Reading (how Industry Fund performance compares to other large Australian Superannuation Funds):

https://www.finder.com.au/super-funds/best-super-funds

https://www.canstar.com.au/superannuation/

https://www.canstar.com.au/superannuation/compare/best-performing-super-funds/

https://blog.stockspot.com.au/best-performing-super-funds/

Experts reveal the best and worst super funds | 7NEWS - YouTube [October 2022]