This one is apparently a newsletter that’s new for US and European investors, but from an advisor who’s been doing research on commodities companies for Aussie subscribers for a number of years. The newsletter is called the Australian Resource and Mining Report, and it’s edited by Dan Denning, which we of course find out on page three as with all of these letters (“let me introduce myself … “)
So, this fella used to edit a newsletter called Strategic Investment, which I’ve also never heard of, but if he’s been recommending Australian resource stocks over the last five years then he would have to be an idiot not to be outperforming almost any index you can think of, so I’m sure he’s done quite well for his subscribers.
Now, he’s saying that that huge bull market in commodities, and in particular for iron ore as China’s steel appetite seems to be no less voracious than it was last year, is just going to get … more bull-y, I guess is the term. There are lots of little bar graphs showing small bars on the left and large ones on the right, and you can really just taste the money that’s bound to be oozing out of those fabulous graphs.
He says he’s got seven Australian companies that we can buy to take advantage of this “Pilbara Profit Secret” — the Pilbara part is named for a region where iron ore is plentiful but fairly low grade, so it’s an area that has not been heavily mined for ore recently but will be soon, given higher prices and increased demand. God knows if I’ll get around to all seven of them, which seems a bit too Herculean even for your mighty Gumshoe, but I can at least start with #1 and we’ll see where we go from there …
So, Pilbara Profit Secret #1 …
This is teased as a company that went public about a year ago.
It’s a contractor that does iron ore crushing as well as several other support things — including building pipelines (not for the ore, silly, for natural gas — LNG is likely to be a significant export driver for Australia, too). But their big business is subcontracting, apparently, to process ore for miners.
The argument is that in this current climate, where lots of small miners are trying to get started quickly to take advantage of high prices, and even the big miners are overwhelmed with demand, the stars are perfectly aligned for nimble service providers who can step in and do the messy processing work or provide other support for the mining infrastructure.
I’ll buy that for now, it has a nice ring to it on a common sense level.
And don’t worry — we get a few specific clues, too:
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“… these Aussies have just inked a lucrative 280,000 tonne annualized sale contract direct with CITIC Pacific.”
And much of the argument here is also that the company is a likely takeover target (from CITIC or one of its peers), since Chinese companies are buying up whatever they can to ensure a steady supply of needed raw materials.
Here’s the short version of the spiel, from the horse’s mouth:
“A buyout could mean instant double or triple digit gains for shareholders.
“But even if this iron ore crusher stays independent, the big picture for this company is a simple one…
“The more money that resources companies spend in Australia to ramp up production and feed the voracious demand of China and India… the more new contracts these guys get… and the higher their share price goes . “
So what are we dealing with here? I think I have to set the Thinkolator to spin counter clockwise to get my Australian knowledge on … but this company must be …
Mineral Resources Limited (MIN on the Australian exchange, it has no US listing but theoretically trades on the grey market with the ticker MALRF — grey market means it’s really not listed at all, there is no one centrally collecting bids and asks and there are no market makers … makes the pink sheets look like the NYSE. I have no idea if you can actually buy shares through the grey market if you want to try, but if you do it would probably be very hard to sell, I’d stick to trading this one in Australia if you happen to be interested.)
Their big business is indeed iron ore crushing, and they also do pipeline and other mining support, and they have a third business line that does refined processing, they have some rights to the Woodie Woodie ore piles for fine processing of Manganese (can’t make up a name like that!), and are working on future similar business in the Philippines, including an iron sands project. Never heard of iron sands before, but perhaps it’s just as sexy as oil sands for the hungry steel makers.
Their last report is available here (pdf file), and it does sound pretty compelling. I might just actually get myself interested in this one if I spend a bit more time on it … things that stand out for me are their leverage to a growing industry of small companies and new producers, and their board’s decision to set a 50% dividend policy (50% of earnings paid out as dividends, that is). They’re also currently growing earnings at about 50% sequentially, and revenues at about 50% year over year, so there’s certainly plenty of growth going on — though since this is just their first year or so as a public company that is essentially a wrap-up of three firms that are now three separate divisions, probably it would be worth some time to look at the details of that growth. The shares were down about 5% today, for whatever that’s worth.
Mineral Resources Limited is saying, as of their last announcement, that they’re forecasting net profit for FY 2008 of about AU$40 million, they trade at a PE ratio of about 16, and, as one should expect from a relatively newly public company, they have very little debt and plenty of cash.
And as the Gumshoe feared … I can’t get another quick one out for you just this moment, but at least we’ve got a little start on this “Pilbara Profit Secret” for you … not so easily traded in the U.S., in my opinion, but maybe worth a look if you’re interested. I’ll check out the others and see if there’s anything worth reviewing and maybe even get a second writeup out later today … have a great week, everyone!