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Real-Time news about Mineral Sec (London Stock Exchange): 0 recent articles
|djalan: From HC
Analyst wants CopperCo probe
9th December 2008, 7:30 WST
Research house Fat Prophets has called on regulators to investigate the collapse of CopperCo two weeks ago, describing the failure as "diabolical".
Fat Prophets resources analyst Gavin Wendt says the sudden collapse of the Perth-based producer has raised questions over its disclosure to investors and a late flurry of trading in its shares in the days before it went into a trading halt.
The collapse of CopperCo, chaired by Keith Liddell, has been blamed on its failure to refinance $45 million due to Macquarie Bank. The debt was inherited in the merger with Mineral Securities three months ago.
Mr Wendt told subscribers to Fat Prophets' latest mining report that CopperCo had never cited the refinancing as a concern. "The situation with respect to CopperCo, which right up until the end was trumpeting its robust financial position and seemingly no mention of its debt position, has us perplexed, angered and continuing to ask many questions of both the company and market regulators," he said.
CopperCo completed the merger with MinSec in September. A refinancing deal fell through at the last minute, prompting directors to call in voluntary administrators from McGrath Nicol on November 27.
Macquarie then appointed receivers and managers from Ferrier Hodgson to safeguard its $135 million total exposure.
The merged group's assets include major stakes in Niplats, Corvette Resources, Platmin and Tianshan Goldfields.
Mr Wendt said the Australian Securities Exchange and the Australian Securities & Investments Commission needed to have a close look at the company, including "highly irregular movements in its share price".
Shareholder casualties of the collapse include company promoter Tony Barton, Queensland mining magnate Nathan Tinkler and east coast boutique investment bank Lazard Carnegie Wylie.|
|whealan: I see from the ADVFN list of trades on Minsec CDIs on the ASX that 8.8million were sold yesterday at A$1.05 after hours, dropping the price there by 17%. No effect apparently on the share price here.|
|utwiq: I posted this lengthy analysis elsewhere - it may be of interest (although be warned it largely sums up [and updates] my last few posts on this board):
With the renewed interest in copper (amongst analysts, investors [witness Grandich's change of heart]), I thought I'd post an account of an ASX-listed company, CopperCo (ASX:CUO). I'm heavily invested (for a minnow such as myself) in a company called Mineral Securities (listed on ASX and AIM in London, ticker MXX), which is a mining house with a major stake in CUO. The two companies are merging. CUO offers very cheap and profitable copper production, MXX offers a very cheap set of listed investments and development projects including one of the most promising new platinum plays (Platmin, London and TSX listed, ticker PPN) and an unlisted 25% stake in a very high grade zince/lead/silver deposit (Xstrata own the rest).
Private shareholders in CUO and MXX were both upset with the merger proposal, which to me suggests it is a fair deal. Certainly the new company, which so far is being termed New CopperCo, will be very attractive indeed.
Here is the breakdown (all these figures in A$):
761.7m shares (after having taken out MXX's 97m holding in CUO)
$388.47m Mcap at $0.51 (current CUO price)
$207.37m liquid assets (setting aside CUO cash/debt; this figure does however take into account MXX's $51m cash and $72m debt, so $21m net debt)
$181.09m enterprise value (ignore CUO cash/debt)
$82.60m (post-tax profit at current 19kt production)
$112.23m (post-tax profit at 25kt production [mid 2008])
$136.93m (post-tax profit at aimed for 30kt production [end of the year])
This assumes copper is at US$3.73/lb. The company has hedged 27.5kt over three years at US$3.02/lb equivalent (the hedge is in A$, hence the equivalent bit) but the rest of production will be unhedged.
Of the $207.37m net liquid assets, $151.27m is the investment in PPN, which will be a very serious producer from Q1 2009 (shallow, low-chrome platinum ounces - a very attractive company indeed).
At 30kt copper the ratio of enterprise value to earnings is 1.322. Just going on MCap, the P/E is 2.84. All post-tax. Mine life is not terribly long at present (7yrs), but there is a great deal of potential to expand this, especially since the merger with MXX brings together a lot of land in Nthern Queensland, which is where the copper operation is.
None of the above takes any account of the unlisted assets that MXX brings to the table. They include Vostok (a copper property into which Vale is earning an 85% interest - by funding a feasibility study), Sappes (an 800koz gold property in Greece; feasibility completed in 2006, awaiting permitting [a tricky business in Greece] before production), and the jewel in the crown, Lady Loretta, in which they have a 25% interest (Xstrata holding the rest). Here is the analysis for Loretta:
13.7mt at 17% Zn, 5.8% Pb, and 96g/t Ag. Assuming 90% recoveries, each ton contains 336.6 lb/t Zn, 114.8 lb/t Pb, and 2.8 oz/t Ag. At $0.75/lb Zn this is $252.45/t for the zinc, at $0.50/lb Pb, $57.42/t fot the lead and at $12/oz Ag, $33.45/t for silver. Add it up and you have $343.32/t - at conservative metal prices. Assume $50/t opex and you have $293.32/t margin. Outstanding by any measure. Further assume:
2kt/day (19.6yr mine life)
700kt/annum (350 days)
$205.32m operating profit
$51.33m (New CopperCo [pre-tax] share)
I haven't estimated capex for a 2kt/day operation. There was a technical report from April last year which set out some alternatives (one of which was toll milling through Xstrata's nearby Mt Isa operation: higher opex [although my $50/t was a high stipulation] but much lower capex). I wouldn't think it would exceed $200m, of which the company's share would be $50m, so pay-back in less than one year.
Increase the production rate (which is very possible) or up the metal prices and the annual profit leaps accordingly. Very latest metal prices: $1.04 zn, $1.24 pb, $17.79 ag. The value per ton (at 90% recovery, as above) is $542 and the margin $492. MXX's pre-tax annual profit would be $86m. Or increase production to 3kt/day or 4kt/day - pre-tax profit leaps to $77m and then $102.6m.
A very nice kicker for the New CopperCo.
I think this is screamingly good value.
And it gets better.
Since the merger plan was announced CUO and MXX have traded in lock step, but they have diverged slightly since then (the deal is 2.2 CUO shares for each MXX share). The last close for CUO was A$0.51. The merger equivalent is $1.122 or 51.83p. MXX closed at A$0.99 (45.73p equivalent) and 43.5p in London. This gives a nice value gap, into an already startlingly cheap proposal. Invest £1 into MXX now and it buys £1.19 in the New CopperCo (this is just 51.83/43.5). If you buy on the ASX your A$1 buys $1.133, so not quite as cheap, although getting an instant 13% uptick into an already absurdly cheap company should appeal. Or buy in London and get an instant 19% free. All this assumes the merger closes, which I expect it will. If it doesn't, and you bought MXX direct, then you just own an astoundingly cheap mining house.
I have an interest - I own a lot of this (for a small investor like myself) - because I think the numbers are compelling. This is, in my view, worth a serious look for any copper enthusiast or value investor (especially one who wants to buy a copper producer on a forward P/E of under 3, which effectively comes with platinum production, zinc development and a gold landbank for free).
The company websites are quite useful:
And the following article may be of interest (although it does contain errors):
This crowd have written on MXX before. The comments on management experience and the quality of the team being assembled are worth noting. They also wrote up Platmin (PPN) a few days later:
|utwiq: I sent this to a friend the other day, it may be of interest (the figures date from when I wrote, which was last weekend):
Mineral Securities (L.MXX, also ASX listed), £85m MCap, net liquid assets
£132m (including £81m in Platmin [L.PPN and T.PPN] one of the most promising
junior platinum developers in South Africa) as well as direct project interests
which I conservatively at £35m. So each £1 invested buys £1.96. It is merging
with one of its larger investments, Copperco (ASX.CUO), and (it seems)
delisting from AIM. The proposed merger won't close before early May and has
put both companies in a downward spiral. CUO is in production (18kt copper,
ramping up to 25kt, with their eye on 30kt). The merged entity will have a
MCap of A$395m (at present share price), with $227m in liquid assets (less $30m
or so in CUO debt), and will have a pre-tax operating profit (from copper
production) of $106m (at US$2.50/lb) or $166m (at US$3.50/lb). The current
price for copper is actually $3.76/lb although CUO have hedged a portion of
production at circa $2.50/lb. So it will be a pretty powerful and cheap
package. Plus there are synergies between CUO's production and MXX's direct
project interests. This is headed up by some very competent people who will, I
think, make excellent use of the larger size of the new entity and its enormous
cashflow. The share price has been a disappointment, but it should benefit
disproportionately from any upturn in the metals markets, and if the merger
closes a rerating seems likely. This is the most ordinary of my metals
investments - a range of development projects, with one in production. Less
explosive in the short-term but if managed well they could make serious
progress as a diversified mid-tier miner.|
|utwiq: fwiw - I've been thinking a lot about the merits of this deal
MXX management have a major stake in the company, per my post above, so I don't think they are just empirebuilding or happily diluting us mere mortals; I think this will be an honest attempt to build long-term value
both CUO and MXX private shareholders seem to be annoyed by the proposed deal, and I can understand why - CUO has just hit production and is trading at a very low price and obviously MXX is massively discounted to its equity holdings (not to mention its directly held interest) - however this strikes me as a good sign!
the deal is not to either party's immediate advantage; that is, no one is getting the better of the deal, but it is a medium term win-win
we (MXX shareholders) get access to major cashflow; I remember thinking, just before the merger, that at $2.50 copper, CUO was effectively on a P/E of 2.5 (rough figures; not accounting for tax!), and that MXX should up its stake
as it is, the enlarged group will have a suite of excellent development projects (which is what we bring to the table) and massive cashflow (the CUO contribution) with which to fund development, service debt for major acquisitions, etc.
the rationale, I think, (not terribly well expressed thus far) is that the enlarged group will have a better shot at realising the value of CUO's cashflow and MXX's development suite than would either on their own; I know this was the rationale for MXX/SCRB as well, but it made sense then too, and it makes even more given the intervening market changes, with capital raising being more difficlt and share price volatility being notable
MXX/CUO will be capable of serious value-adding development and corporate action once they've merged; the resulting company will be roughly (I'll give exact figures later) $400m MCap, with $250m in listed assets, $100m/annum cashflow and some very valuable directly held development projects (Loretta, Sappes); on reflection, I'm happy with the deal, although of course I'd love the value in MXX to have been recognised earlier and more fully...|
|pillion: From HC an Oz bull-board
the value for the MXX / CUO merger is dwindling by the day. based on CUO's close today the deal values MXX at $1.29.
who is benefiting out of the merger? doesn't appear to be MXX shareholders.
have a look at the Annual Report - specifically the CEO's report that said as at 14 Dec the value of MXX's assets was $385m USD. i know that the value of these stocks has diminished quite rapidly but hell even the 20m odd Platmin shares have a value of approx $160m CAD at their current $8CAD share price.
There are approximately 150m shares on issue so at current prices its MC is approx $200m.
add to this the $50 worth of CUO shares, $28m worth of TGF, $15m worth of NIP, $16m worth of BKG (all at current prices)and excluding other assets (lady loreta and various other gold plays and investments), can someone please explain how $1.29 worth of CUO shares is a good deal for us?
sorry for venting and rambling but i am one disgruntled option-holder that is seriously considering not exercising my options tomorrow.|
|utwiq: The news is available at the head of the page:
1. PPN is raising $150m by share offering
2. sale by major shareholder (CDC?) of its stake to Karrick (Mittal family I think) and to us at the price of C$9.90, so above the current price
not what I expected (certainly not MXX increasing its stake like that)
Wow. So we are going to expand our largest investment by far by close to 70%, using cash and debt. Management must be super confident that PPN is going to succeed. I'm confused in several ways. First, why bother? Don't we have massively enough exposure to PPN as it is. Second, why not participate in the rights offering, presumably at a modest discount, rather than buying shares from another shareholder at $9.90? I may be wrong, however, perhaps the rights offering will be at a premium. Certainly there seems to be a heavy instititional following (with Mittal coming in now), with a small free float and very illiquid trading. I'm very glad to hear we're using debt rather than equity. It would be criminal to use our absurdly cheap stock to buy more PPN, when most of the price of each MXX share is underpinned by PPN as it is, with everything else in there for free.
Finally, an article by mineweb on platinum juniors (with the relevant extract):
Platmin (AIM:PPN, TSX:PPN), also among the fund's top five picks, could be acquired by platinum producer Lonmin, which already holds a stake (22.5%) in the company. Interestingly, a "huge" share block of $100m in the company was recently exchanged between a fund and another party.|
|clearsoup: 213 Not a pretty sight! But it does suggest that there is a fair amount of negative sentiment, not necessarily the same thing as wisdom, depressing the MXX price; in which case there is every reason to expect relative performance to reverse if and when envy towards the sector turns back into lust.|
|utwiq: You're welcome whealan. Many thanks for the heads up re the trading situation. That would certainly explain today's massive sell, and possibly one or two such persons have been dominating the recent trading (in combination with the general market decline). I think there are some A$1.30 options that expire at the end of this month, which may have been depressing the share price as well. But with Platmin heading back up and the discount yawning so wide, something has to give. And in the meantime, the stock just constitutes a great big bargain! You're totally right to consider the underlying value of each holding, rather than just to focus on the MXX discount. There has been a recent broker's note (or two?) on Tianshan - check the minesite.com listing of broker's reports - and the Copperco website has a great report as well (target A$1.60 from the present A$0.97...). I haven't seen anything so explicit on Platmin but mineweb.com always refers to it as the pick of the platinum juniors on account of its near surface ounces and minesite.com had a good profile a few months back. As for Sappes and Loretta, well you can do the NPV yourself (or follow up the Snowden report on the latter). Suitably (that is very conservatively) discounted for risk, they still add a lot of value. No one knows where the share price will go in the short-term, but I'm happy to hold an outsized position in this one on the grounds that it offers very good and very discounted general exposure to metals (nice to have one's £100 buy £170 of assets), has a talented management team who should add value, and has limited downside thanks to the discount.|
|whealan: utwiq. Thanks a lot. (You are of course quite right - sorry to short-circuit the development stage!) I am really trying to see if the individual share prices are justified at today's metal prices but unless one of the MMX researchers has done it recently and put out a note I expect one would have to look at the underlying financial justifications oneself in each case and see what happens on the range of prices they assumed. Turning this into a share price calculation would require so many other assumptions that it probably is best left to the analysts.
Incidentally, my broker told me on Friday that in talks with the company he had learned that there was an ex-Scarborough holder with £500,000 of Minsec shares who was a seller. Perhaps that holding is reflected in today's sales and may account for the weakness in the price.|
Mineral Sec share price data is direct from the London Stock Exchange