Australian Mines management attributes rerating to Clean TeQ comparison

Published at Oct 18, 2017, in Mining

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.

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.

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.

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.

Facebook
Twitter
LinkedIn