Top Gainer: OM Holdings (OMH)
After months of a declining share price, which has seen OM Holdings (OMH) fall 44% in just four months from $1.59 to 89.5 cents, OMH was today’s biggest gainer with a massive 14% gain for the day.
OM Holdings Limited (OMH) is an investment holding company that operates commercial mining operations through its subsidiaries with operations in Australia, China and Singapore. Its subsidiaries include:
– OM Manganese (OMM), involved in the operation of a manganese mine
– OM Materials, engaged in the trading of metals and fabricated metals
– OM Materials (S), engaged in investment holding and trading of metals and ferroalloy products
– OM Materials (Qinzhou) Co Ltd, engaged in the sales and processing of ferroalloy and ores
– OM Materials (PNG) Limited, involved in the exploration and evaluation activities.
Through OMM, OMH controls 100% of the Bootu Creek Manganese Mine in the Northern Territory. Bootu Creek has the capacity to produce approximately 600,000 tons of manganese annually. OMH also holds a 11% interest in Territory Resources, which operates the Frances Creek iron ore project, also in the Northern Territory.
Three bits of news hit the market today, pushing OMH higher. Firstly OMH has scrapped its plans to dual list on the Hong Kong stock exchange, secondly, it may split off its smelting and trading arms, and thirdly it reached record performance at its manganese mine Bootu Creek. It was the last bit of news that would have had the most impact. According to OMH, record operational performance was achieved at Bootu Creek in the first half of 2011, coupled with strong ore and alloy sales despite lower manganese prices and the strong Aussie dollar.
In a research report from February, RBS Australia had a hold on the miner, with a price target of $1.43, saying that it remains cautious on the outlook for manganese prices, with Chinese port inventories at near record levels. “In the medium term we see value in OMH as Bootu Creek ramps up production to 1Mtpa and key growth projects in South Africa and Malaysia advance,” it states in its report. “We maintain our Hold recommendation and our NPV-based target price rises to A$1.43ps (from A$1.35ps). We would look to positively change our view should the outlook for manganese prices improve.” You can read the full report here.
Euroz Securities analyst Greg Chessell is somewhat more bullish on the stock, although it must be noted that he declares a beneficial interest in the miner. He has a price target of $2.07 in his March research report. “OM Holdings offers good exposure to the Mn market through its moderately long life Bootu Ck mine,” says Chessell. “OMH’s skills in marketing of Mn and Fe ores in China, and its downstream alloying and sintering plant in China capture value throughout the entire supply chain and market insight more than typical upstream only minerals producers in our universe.” Chessell believes that frowth into 2011 should come from greater manganese ore and alloy volumes in the vicinity of 15%, a maiden contribution from the Sinter plant at Qinzhou. “We expect an improved P&L and cashflow result in 2011.” writes Chessell. You can read the full report here.
According to Reuters broker consensus data, 0 brokers hold Buys on OMH, 3 have Holds, with no Sells.
Chart: Share price over the year to 05/07/2011 versus ASX200 (XJO)
Stock code: OMH
Charts: OM Holdings Limited
More news: OM Holdings Limited
Investor Centre: OM Holdings Limited
Biggest Loser: Murchison Metals (MMX)
It was hardly surprising to see Murchison Metals’ share price tumble on Tuesday, although the depth of the plunge was quite something – falling 23.3% to be the day’s biggest loser. Shares had plunged by 20 per cent on Monday on news of the cost blowout and after emerging from a trading halt entered into on June 23 but recovered dramatically to close down just 1.5 cent, or 1.96 per cent, at 75 cents. Trading today saw the same sort of downward pressure, without the recovery. It now remains to be seen whether MMX can pull itself out of the mess it is in.
MMX hit the market with several pieces of bad news this week, shuffling its senior management and revealing a massive cost blowout at the Oakajee port and rail project in WA. The management shake-up saw the executive chairman stepping down, the chief executive becoming chief operating officer and a new CEO being brought in.
Bigger news is the cost blow-out and funding issues. The Perth-based miner admitted that it faced serious financing challenges to meet its funding commitments, and is struggling to secure loans. It will even consider selling its flagship iron ore mine to pay for the over-budget and late Oakajee port and rail development.
Independent analyst Peter Strachan said Murchison would most likely reduce its 50 per cent interest in Oakajee Port and Rail (OPR), its joint venture company with Japan’s Mitsubishi. “The company has already moved down the path of selling some or all of its interest in OPR,” Strachan said. Strachan pointed out that Murchison was a small company and couldn’t finance half of a $6 billion project on its own.
The cost blowout was revealed in a feasibility study for the infrastructure development showing a 24 per cent cost increase to $5.9 billion, along with a blowout for its Jack Hills mine expansion in the Mid-West. This compares to an estimate of $5.24 billion in November and an original costing of $3 billion in March 2009. The combined projects will cost a whopping $10bn.
The future of Oakajee had already come under a cloud last month when state-owned Chinese group and would-be Oakajee customer Sinosteel mothballed its $2 billion Weld Range iron ore project.
Incoming CEO Greg Martin told a teleconference that the miner would consider all options to fund the Oakajee project, north of Geraldton in Western Australia, including selling its $3.7 billion Jack Hills iron ore project. “There is no doubt that Murchison finds itself in a very challenging environment,” said Martin, a former AGL Energy chief. “All options are on the table for consideration as part of this process … nothing is sacred or sacrosanct.”
Despite the cost blowout, Martin says Oakajee’s costs compare favourably with other infrastructure projects and he was confident it would attract investors. Meanwhile WA Premier Colin Barnett says he expects Chinese parties will be interested in a stake in Oakajee. Martin said Chinese entities had already invested $3 billion to $4 billion in the region, and it was logical for the Oakajee development to proceed.
Mr Martin said he would spend the next fortnight on the road asking for funding from the WA government, Mitsubishi and other possible investors and he will also try to repair relations with Sinosteel – which said the delays were costing it $100 million a year – and other foundation customers.
The WA and federal governments have already committed a combined $678 million to the port but WA Premier Barnett has consistently ruled out the state government increasing its $339 million contribution. Mr Barnett has described Oakajee, one of Australia’s largest infrastructure projects, as the state’s most important development for the next 50 years as it would open up a second major iron ore province, behind the Pilbara. This now appears to be under a cloud.
Based on Thomson Reuters data, 20% of analysts have a buy on MBN, 80% have a hold, 0% have a sell.
Chart: Share price over the year to 05/07/2011 versus ASX200 (XJO)
Stock code: MMX
Charts: Murchison Metals Limited
More news: Murchison Metals Limited
Investor Centre: Murchison Metals Limited
Each trading day we will look at the top gainer and biggest loser for the day. Note that these are not recommendations to buy or sell, although we do include broker views on these stocks in the article.
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