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Top Gainer: Murchison Metals (MMX)

 Closing price  $0.795
 Change  +0.055
 % change  +7.4%

 

Despite Wednesday’s 7.4% gain Murchison Metals (MMX) has been punished by investors in recent times, dropping 66% over the past 12 months as the company has been in turmoil with management changes, cost blowouts and a cloud hanging over not only its Oakajee Port and Rail project, but the viability of the entire business. Brokers have been quickly shifting their recommendations on the stock to a sell, with Citi downgrading MMX to a sell following the release of a feasibility study for the Oakajee project. UBS joined in the party, slashing its target price by 77% to just 70 cents.

The biggest news is the cost blow-out and funding issues, which is leading MMX to consider all options to survive. 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.

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.” 

It has been rumoured that MMX is now looking for a buyer, approaching the Foreign Investment Review Board for a briefing to try to push through approval for a takeover. China’s Sinosteel had attempted a takeover back in 2008, but Wayne Swan put a stop to that. It seems these truly are desperate times for MMX, and while a takeover from Sinosteel or another suitor would see the stock jump, the risk of another rebuttal from Swan means that there is still plenty of downside risk. Any investment in the stock is a pure gamble.

Although it made a massive gain on Wednesday, brokers warn investors to steer clear of the stock. Based on Thomson Reuters data, no analysts have a buy on MBN, two have a hold, four have a sell. Only a month ago there were no sells.

 

Chart: Share price over the year to 27/07/2011 versus ASX200 (XJO)

Stock code: MMX

Charts: Murchison Metals Limited

More news: Murchison Metals Limited

Investor Centre: Murchison Metals Limited

 

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Biggest Loser: Mirabela (MBN)

 Closing price  $1.95
 Change  -0.17
 % change  -8.0%

 

Bouncing off an annual low of $1.615 at the beginning of the month, investors in Perth-based nickel miner Mirabela (MBN) have finally had something to cheer about, with the stock rocketing 60.5 cents, or 37.4% in the past three weeks. Still, the stock joined the loser’s list again today as it plunged 8.0% – and this was on “good” news  that it had boosted nickel production at its flagship Brazilian mine by 20 per cent during the three months to June 30. It seems the recent run was on rumours of an increase in production, but the number just wasn’t what investors were expecting. 

Down 12% for the year, as you can see from the chart below it has been a tumultuous ride for those backing the nickel miner, with the stock stuck at low $1.60s towards the end of last year until it jumped 50% to an all-time high of $2.45 just before Christmas. It didn’t last long, however, with the stock steadily retreating over the following 6 months until it jumped again in July.

MBN is an international nickel producer and according to the company it has a “world-class” nickel sulphide mine in Brazil that has a 23-year reserve life and potential to expand. It claims that it is the largest nickel sulphide project commissioned in the last decade. MBN is currently self-funding from existing operations & cash balance.

The miner admits that there are some challenges ahead in 2011 and beyond. While it has completed the mine pre-strip and the plant upgrade is ahead of schedule with completion expected Q3 2011, its 2011 production and cost targets under pressure. It says that there are also ramp-up challenges with contractor drilling performance and tyre availability, plus there’s the problem with the strong Aussie dollar.

You can read the company’s 21 page report at the UBS Australian Resources Conference earlier this month by clicking here.

Nonetheless, analysts are bullish on MBN’s prospects. Based on Thomson Reuters data, eight analysts have a buy on MBN, three have a hold, with no sells. 

 

Chart: Share price over the year to 27/07/2011 versus ASX200 (XJO)

Stock code: MBN

Charts: Mirabela Nickel Limited

More news: Mirabela Nickel Limited

Investor Centre: Mirabela Nickel 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.

Please note that TheBull.com.au simply publishes broker views on this page. The publication viewsof these  does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.