Australia | Jul 28 2006
By Chris Shaw
Despite the disappointment of Emeco (EHL) being forced to lower its bookbuild price to get its float away, the mining services sector of the Australian market continues to attract investor attention. The latest cab off the rank is Mineral Resources (MIN), which has listed today after an offer to raise $22.5m from an issue of shares at 90c.
The company provides services to the mining infrastructure sector, but is somewhat unique in that it is both a mining services and processing company. It is the amalgamation of three main divisions, PIHA, Crushing Services International and Process Minerals International, all of which have their own areas of specialisation.
PIHA’s specialty is pipelines and site infrastructure, the company being one of only a few in the world with the "tight fit" lining technology that is used to line old steel pipelines. It also manufactures polyethylene pipeline fittings, constructs pipelines and installs cable networks.
Crushing Services International builds, owns and operates crushing plants, providing its services to a client base including BHP Billiton (BHP) and Rio Tinto (RIO) and in metals and minerals such as gold, iron ore, tantalum and coal.
The Process Minerals International operations began with the rights to the reject manganese fines at the Woodie Woodie mine in Western Australia, which it sells into the Chinese and Asian markets. The company is now expanding its operations into the Philippines via a feasibility study into a possible chromite mine and mineral processing plant.
The company expects to grow its operations both organically and via acquisition, the organic growth all but assured by the growth being experienced in commodity markets. As the company points out in its prospectus, in past 18 months there have been 62 new mining projects brought on stream with a total value of $16.2bn, while another 90 projects are currently committed or under construction and a further 166 under consideration.
This growth is expected to produce solid profit growth, the prospectus showing the company is forecasting pro-forma revenue of $97.6m in FY06 and $120.7m in FY07, which translates to earnings before interest, tax, depreciation and amortisation of $23.7m in FY06 and $34.5m in FY07. In profit after tax terms, this equates to $8.6m for FY06 and $13.7m in FY07.
One advantage the company has in management’s view is it can easily transfer its technology, meaning what applies to the manganese fines it treats can be adjusted to other types of ore. This gives the company a cost advantage in terms of technology, while it also enjoys solid relationships with its clients and has strong market positions.
Shares in Mineral Resources have enjoyed a solid opening to trading, with a first sale at $1.20 and a price as at 11.45am of $1.15.