Australian Mines management attributes rerating to Clean TeQ comparison
Published on: | by Trevor Hoey
Shares in Australian Mines (ASX:AUZ) traded as high as 5.3 cents on Wednesday morning, representing a gain of nearly 60 per cent relative to the previous day’s close of 3.4 cents. This came on the back of a similar spike on Tuesday when the company’s shares increased from 2.6 cents to 3.4 cents, representing a gain of 30 per cent.
Increases on both days have been supported by extremely heavy volume buying with an all-time record of nearly 250 million shares changing hands by midday today.
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Yesterday’s surge in AUZ’s share price prompted a query from the ASX, requesting the company to explain whether there was any information not released to the market that could account for the spike.
Ironically, it is the nature of the company’s response that has arguably been the catalyst for today’s rerating as it explains some comparisons that have been made of late which purportedly indicate that AUZ is substantially undervalued.
Australian Mines makes comparisons with Clean TeQ Holdings cobalt project
In responding to the ASX query, Australian Mines referred to a Macquarie Research report, which recently attributed a 12-month price target of $2.10 to Clean TeQ Holding (ASX:CLQ). The report valued CLQ’s Syerston project at $1.2 billion.
AUZ has reported to the market (most recently in an ASX announcement dated 6 September 2017), that the company’s North Queensland Sconi Project is similar to CLQ’s Syerston Project in areas such as resource tonnage, expected cobalt-nickel-scandium feed grade, geology, metallurgy and expected metal recoveries.
Despite AUZ’s Sconi Project and Clean TeQ’s Syerston project being very similar, the former’s market capitalisation prior to the recent rerating represented about 10 per cent of CLQ’s market capitalisation. Even after the rerating that has occurred in recent days, AUZ’s market capitalisation is still well shy of CLQ’s.
AUZ’s management is of the view that the significant disparity between Australian Mines and CLQ’s market capitalisations appears to have created an arbitrage situation whereby investors can gain exposure to the cobalt-nickel market via AUZ at a material discount to its peers.
However AUZ is still a junior company and investors should seek professional financial advice if considering this stock for their portfolio.
AUZ also noted that discussions with investors attending the 121 Mining Investment conference in Hong Kong, were aware of the disparity in the two companies’ market capitalisations, and management suggested that this was attracting new investors to AUZ.