Wednesday, July 27, 2011

Mineral Sands still popular: MRC shares surge

At the start of this year I discussed in a post how I thought that Mineral Sands such as Zircon were going to be in high demand due to the needs of China for this ingredient for ceramics.  Iluka Resources (ILU), the heavyweight of the section, at the time was $8.90.  Since then the company has provided bullish forecasts, confirmed improved prices for Zircon an Rutile and had excellent broker coverage.  The stock today closed at $18.70 and Goldman Sachs has a price target of $21.

The other two companies I mentioned have been varied.  Gunson Resources (GUN) was $0.24 when mentioned and now $0.185 whilst Base Resources (BSE) has improved from $0.425 to $0.575 today.  BSE is currently in trading halt pending a capital raising.

Today we saw that the sector is still popular.  Mineral Commodities (MRC) jumped $0.061 to $0.16 today on turnover of 5.1 million units.  The company currently has two interests in South African mineral sands projects however today the company announced that it was to acquire further projects in Western Australia.

MRC will purchase Cable Sands from Cristal, has first right of refusal to buy further tenements from Cristal in the Murray basin and is also establishing a processing agreement with Cristal.  MRC is also looking at purchasing Simto in an independent transaction.

MRC currently has a market cap of about $23 million.  It is acquiring Cable Sands for $96 million.  It seems very ambitious.  $35 million will be financed through vendor financing with Cristal.  MRC intends to raise the remaining funds through institutional investors.

Existing shareholders of the company and those buying on market currently will hope that the capital raising occurs at a high price and that they are not diluted heavily.  I believe that if the company pulls this all off it will be a company making deal.  The company will have scale and they claim it will be the second largest producer in Australia.  It is quite possible then that predators may start sniffing around.

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