ABN Amro Sees Lion Selection Re-Rating Opportunity

This story features ALBION RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: ALB

By Chris Shaw

At the smaller end of the market it is not unusual for companies to change direction and move from minerals explorer to IT play or vice versa, but it is less common for a listed investment company (LIC) to become a mining play.

Such is the potential change for Lion Selection ((LST)), which is currently a LIC with interests including a 21.7% stake in Albidon ((ALB)), a 25.7% shareholding in Indophil ((IRN)) and 44.4% of Westonia ((WEZ)).

The company now has the chance to move from 30% of the more than 100,000 ounce per annum producing Cracow gold mine to full ownership and this in ABN Amro’s view should prompt a re-rating of the stock as the market would price it as a mining stock and no longer as a listed investment company.

To reflect this, the broker has commenced coverage on the stock with a Buy rating given the shares are currently trading at a discount of around 15% to its current net tangible asset backing of $2.05 per share.

Currently the balance of the Cracow project is owned by Newcrest Mining ((NCM)) but the company is calling for offers for its interest and Lion Selection has a pre-emptive right to match any bid made for the stake.

The broker notes a solid balance sheet will be of help, as Lion Selection currently has a little more than $40 million in cash available, while its equity stakes in other companies are worth close to $300 million.

On the broker’s numbers the Cracow mine is worth a little over $250 million based on reserves of around 290,000 ounces, though there remains upside from exploration success. This implies a capital raising would be needed if the company bought the balance of the mine.

On the assumption the stock is re-rated after taking full control of Cracow the broker has set its price target on the stock at $2.05, which is in line with its valuation. GSJB Were is the only other broker in the FNArena database to cover the company and also rates it as a Buy, the broker seeing scope for the Cracow purchase to help in reducing what it estimates to be a similar discount to valuation as that calculated by ABN Amro.

Shares in Lion Selection today are slightly stronger and as at 11.50am were up 1.5c at $1.765, which compares to a trading range over the past year of $1.34-$1.90.

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