Market Update

General - Mineral Resources - Sheffield

Good afternoon

German Manufacturing PMI very strong in July, leading to strong equity markets in Europe.

Escondida wage negotiations and rethoric is hottening up...Antofagastaroad block to protest enviromental issues still ongoing.

Glencore sees more than 1 millt of nickel needed for batteries in 2030? Looks high to me...but you will remember, that Wood mackenzie is also looking for a doubling of prices in a few years time. l

Base metals are having a more positive day in London and are up across the board.

Mineral Resources - the company is forecasting 600 mill A$ EBITDA of it´s Wodgine operation, once in full production. That implies to me a price-tag for it of say 4.2 bill A$, i.e. 2.1 bill for a 49% stake ( which the company expects to be sold by year end ). While needing approx 1.5 bill A$ to build the new railsystem in WA, that leaves a lot of cash to be distributed to shareholders. Using a 25% ax rate on the sale - I guess that´s conservative - would let em arrive at after tax proceeds of just under 1.6 bill$, leaving some cash to be distributed after expensing capex of  1.5 bill A$ for the rail-project . EBITDA based on the  companies forecasts for Wodgina, could be 700 Mill A$ p.a., using 50% of Wodgina...but that excludes and returns from the planned rail project, which got to be substantial ( 200 mill EBITDA p.a.??). So my minimum valuation for MIN is somewhere around 4.5 bill A$, i.e. 25-30% higher than today. That is my 12-month target , by which time, the three Wodgina plants would all be up and running.

Another way to look at: Using a 4.2 bill$ valuation for 100% of Wodgina, and therefore 2.1 bill A$ for 51%. Using 5x EBITDA for the rest , I would arrive at 4.2 bill $ + 200 mill in cash - so roughly the same valuation! In arriving at these numbers, I ahve used a blend of Macquarie- and JPM research. 

Sheffield - very strong today. Reasons: A positive Quarterly from major producer Iluka, reporting about very strong demand for mineral sands across the board and very limited supply, and a bew research report, which arrives at a 2.20$ valuation for SFX, using the current pricing regime for zircon and ilmenite. They believe, that the value of the company for a strategic buyer is closer to 3$ - also given the very low, sovereign risk of Australia. Enviromental approval, as well as Native Title, are expected any time now - I think anything than before the end of August would be surprising. These two events will be significant triggers for the stock.

Have a nice evening


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