Mount Gibson shares rally in response to strong growth

By Trevor Hoey. Published at Aug 16, 2018, in Special Reports

Name: Mount Gibson Iron Limited (ASX:MGX)

Market Capitalisation: $500 million

Opening Share Price: 46.5 cents

Mount Gibson Iron has delivered a net profit after tax of $99.1 million for fiscal 2018, representing impressive year-on-year profit growth.

This resulted in the company’s shares trading as high as 49 cents on Wednesday morning, a level not attained since 2014.

The company generated sales revenue of $254.1 million ($196.5 million Free on Board (FOB) after shipping freight) and total ore sales of 3.6 million wet metric tonnes (Mwmt), including sales of low grade material from Extension Hill.

The result includes the receipt in July 2017 of the $64.3 million settlement proceeds from the business interruption component of the company’s Koolan Island insurance claim.

Of course this remains a speculative stock and investors should seek professional financial advice if considering this stock for their portfolio.

Dividend surprises on the upside

Gross profit before tax from continuing operations, the best like-for-like comparison, totalled $48.7 million, compared with $36.5 million in fiscal 2017.

With regard to the company’s financial performance, one area that would have impressed was the dividend of 3 cents per share, 50% higher than the projected 2 cents per share.

Based on this morning’s opening price, this represents a yield of 6.5%. While the company’s shares have rallied today, the consensus 12 month price target was 55 cents prior to releasing this result. There is the potential for the target price to be favourably reviewed given the level of outperformance, robust balance sheet and upbeat outlook statement.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Cashed up with costs declining

Cash reserves, including term deposits and liquid investments, increased by $10.8 million over the financial year to $457.5 million as at June 30, 2018.

All-in group cash costs averaged $45/wmt, reflecting the ramp-up to full production at the Iron Hill operation, three kilometres south of the depleted Extension Hill pit.

This represented a substantial reduction compared with average all-in cash costs of $52/wmt in the prior year, reflecting the company’s ongoing focus on cost control and operational efficiency.

Mount Gibson’s overall objective is to maintain and grow long-term profitability through the discovery, development, operation and acquisition of mineral resources. As an established producer and seller of hematite iron ore, Mount Gibson’s strategy is to grow its profile as a successful and profitable supplier of raw materials.

Another of the company’s objective is to grow its substantial cash reserves and continue to pursue an appropriate balance between the retention and utilisation of cash reserves for value-accretive investments.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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