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 MARKET REPORTS |
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Analyst report - shares
"Stock of the week": Mincor Resources
August 25, 2007
Tim Morris, Wise Owl analyst
Stock: Mincor Resources
Code: MCR
Mincor’s meteoric rise from its penny dreadful status below 10c at the start of the decade has corresponded with its transition from junior explorer to mid-tier nickel producer. The bulk of the stock’s glamorous ascent has taken place over the past year or so, culminating with its recent inclusion in the ASX200 index.
However, after tipping highs of just over $5 in June, a freefalling nickel price combined with a nervous market saw the stock lose almost half its market value.
Recent trading has seen the stock stage a slight recovery, but we feel it remains oversold, offering an interesting proposition of both value and growth that could see it return to previous highs.
Mincor operates five nickel mines in the Kambalda District of Western Australia, is developing a sixth, and carrying out feasibility studies on two more. From under 2000 tonnes of nickel metal in 2001, the company has grown production each subsequent year, producing close to 15,000t in the most recent financial year, and targeting around 17,000t for the year ahead.
Even with this strong ramp-up in production, Mincor’s resource base has continued to grow, and sits at over 100,000t as of March this year. Rising production has fuelled strong earnings growth, with the company reporting a 245% increase in net profit to $101m for the most recent financial year. Despite a strong pipeline of projects involving the development of 3 new mines over the next 2 years, the stock is only trading on a PE of 6.6. Given the stock’s correlation with the nickel price, those erring on the side of conservatism may argue that this multiple is warranted.
After falling from over $20 per pound to just over $12 over the past few months, further weakness in the nickel price does pose a risk. However, Mincor was running profitable nickel mines when the price was closer to $5 per pound, and management will continue to focus on earnings and dividend growth.
The commencement of ore production at Mincor’s 70% owned Carnilya Hill mine early next year should boost future earnings. In the short term however, catalysts affecting the share price are expected to be an initial resource statement from their Mariners ‘N09’ discovery, and a resource and reserve update from the company’s Mittel ore channel, which has been in production since 2001.
Wise-owl.com has a buy recommendation on Mincor Resources.
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Fundamental analysis: Chief ratios for stock hunters - part 2
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US markets: Long valuation waves and market fear
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Ask the expert: Uncovering the average forex trader
Stock of the week: Mincor shares suffer from nickel freefall
CFDs: Pyramiding provides windfall to CFD traders
CompareShares Reader: Cloud gazing or tea leaves?
Tim Morris is an analyst at Wise-owl.com, one of Australia's leading independent stockmarket research houses.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions.
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