Melewar’s investment in Aussie miner’s shares up seven-fold
By C.S TAN
PETALING JAYA: Melewar Industrial Group Bhd’s investment in an iron ore mining company in Western Australia has turned into a “gold mine”.
The company made an initial investment in Gindalbie Metals Ltd in 2004 and subscribed to more shares last year. Its average cost in Gindalbie is 10 Australian cents a share and the price has surged seven times, or a seven bagger in stock market terminology. Gindalbie closed at 79.5 Australian cents on the Australian Securities Exchange yesterday.
Gindalbie's price received a boost after the company signed on Monday a share subscription agreement with China’s Anshan Iron & Steel Group Corp (AnSteel), which would subscribe to a 12.9% stake in the Australian firm, Melewar chief operating officer Datuk K. C. Lim told StarBiz yesterday.
Gindalbie rose from 70 cents on the news early this week. AnSteel is reputedly the second largest steel producer in China. The news may also be a reason for the recent interest in Melewar shares.
It is not widely known, however, that there is a Malaysian listed company that has a substantial interest in an iron ore mining firm in Australia.
Currently, Melewar is Gindalbie’s single largest shareholder with a 17.2% stake although that would be diluted to about 14.5% after the mining company makes a placement of shares to AnSteel.
Melewar’s stake in Gindalbie is worth about RM165mil. That, in turn, works out to be worth 72 sen a share in Melewar, which closed at RM1.19 yesterday.
It also means Melewar shares were valued at just 47 sen each for the rest of its businesses which include wholly-owned subsidiaries Melewar Steel Tube Sdn Bhd and Melewar Steel Mills Sdn Bhd, and stakes in listed companies, namely 52.4% of Mycron Steel Bhd and 21.5% of M3nergy Bhd.
Melewar stated in its annual report last year that its steel manufacturing division had net assets of over RM380mil. The reason investors overlooked the value in Melewar could be its uneven track record and their focus on larger steel companies.
The group has started to get noticed. M3nergy shared surged to limit up on Tuesday afternoon. Following a query from Bursa Malaysia, M3nergy said yesterday there were no material developments.
The interest in M3nergy could be investors’ discovery that the company is rich in oil and gas (O&G) assets. It owns a floating, production, storage and offloading (FPSO) facility; a floating, storage and offloading (FSO) facility; and net cash of more than RM54mil. M3nergy had net assets per share of RM3.30 against its share price of RM1.44 yesterday.
It is unusual for the shares in an O&G company to trade below its net assets. Besides its assets, M3nergy has agreements for production sharing contracts to develop marginal oil fields in Indonesia and India.
The FPSO and FSO facilities have been profitable from day one of M3nergy's investment. The company’s operating profit from O&G services amounted to RM30.8mil for the 15 months to March 31, 2007.
Melewar COO Lim said the company's directors decided three years ago to invest in Gindalbie when they saw steel prices rising. Eventually, it is intended the Gindalbie shares would be sold. “We’re not mining experts,” he said.
As to the timing of sale, he said: “It has not reached our target price.”
Gindalbie was exploring for gold when it discovered a lot of iron ore deposits on a small section of its land. The company has not started to produce iron ore yet but the A$39mil (RM109mil) to be raised from the share placement to AnSteel would ensure that it has sufficient funds to develop the mine.
The Australian miner would start to bring up the iron ore at the end of the year or early 2008. “We should see a better value in the Gindalbie shares at that time,” Lim said.
Furthermore, Gindalbie could become a takeover target of the global mining giants.
