London Mining's deep half-year loss reflected a $51m ($32m) cost associated with the production ramp up at its Marampa iron ore project in Sierra Leone. But, as output grows, that mine's potential leaves the shares looking too cheaply rated on a 50 per cent discount to Liberum Capital's net present value (NPV) estimate of 343p.
Indeed, Marampa should produce 1.5m tonnes (mt) of high-quality ore by the year-end, rising to 5mt by 2013's third quarter. That's supported a royalty agreement with BlackRock World Mining Trust that delivered $110m (£69m) of funding last month. Beyond that, management plans to expand production to 9mt, which will require debt funding, followed by an eventual hike to 16mt. And, as volumes rise, costs should fall to $45-$50 a tonne by 2014 from the current $76 a tonne. The only glitch is pricing - London Mining's received price fell to $98 a tonne in the second quarter from $108 in the first quarter as Chinese demand softened.
Meanwhile, the group's Colombian coking coal operation was hit by weather-related issues and performance faults during its ramp up - meaning a lower than expected 18,000 tonnes of coke production in the half and a $9.6m goodwill hit.
Liberum Capital expects a full-year loss per share of 23p and a move into profit next year with EPS of 6p in 2013.
LONDON MINING (LOND) | ||||
|---|---|---|---|---|
| ORD PRICE: | 171.8p | MARKET VALUE: | £238m | |
| TOUCH: | 170.5-172p | 12-MONTH HIGH: | 391p | LOW: 132p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 209¢* | NET DEBT: | 52% | |
| Half-year to 30 Jun | Turnover ($m) | Pretax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | nil | -25.6 | -26.0 | nil |
| 2012 | 57.7 | -21.7 | -14.0 | nil |
| % change | - | - | - | - |
*Includes intangible assets of $123m, or 89¢ a share £1=$1.58 | ||||
