PORTFOLIO POINT: Chinese investor offers a premium price to back fertiliser hopeful Potash West towards production ... and Cortona seriously undervalued.
A so-far unidentified Chinese investment company has made a confidence-boosting offer to inject $3 million into Potash West (PWN) at a generous premium to the current share price.
The offer, proposed at the end of last week, was for a placement of 9,090,909 shares to be made at 33c each – which would represent a premium of 35% to the five-day average price of the stock ahead of the offer.
Potash West traded up from a low last week of 23c to a high of 28c before closing at 26c. That’s also the price it traded at today.
The funding will cover a significant portion of the company’s pre-feasibility study now underway aimed at extracting a potash-rich fertiliser from the company’s 2,905 square kilometres of tenements over the 60 million year-old Dandaragan Trough north of Perth.
The company has so far demonstrated its tenements contain one of the world’s largest deposits of green sands or glauconite – a source of potassium, an element vital to all plant life, as is phosphorus and nitrogen.
Readers may recall I last ran an update on Potash West in this column on September 19 when the company was working towards announcing a maiden JORC-compliant (Joint Ore Reserves Committee) resource on which to base a scoping study.
The company has since defined an indicated JORC resource of 244 million tonnes of 3.5% potassium oxide (K2O), including 122 million tonnes at 4.6% K2O.
The glauconite sands are contained within relatively shallow deposits covering a strike length of 150 kilometres in length and 15 kilometres in width across the Dandaragan Trough.
The tenements run south-north, starting about 50 km north of Perth, and include farm-ins for the glauconite on much of Image Resource’s heavy mineral sands prospects. (Under the farm-in agreements, Potash West keeps any glauconite found and heavy minerals found will be retained by Image (IMA).
With 84 million shares now on issue, the company’s shares at 26c carry a market capitalisation of $21.84 million, with remaining cash likely to be around $1 million at the end of the year after a spending budget estimated at around $1.5 million through to the end of calendar 2012.
That should cover the company for the completion of a scoping study due to be revealed in December.
So, the offer of an injection of $3 million in new capital at an attractive premium is a timely welcome and demonstrates robust confidence on the part of the Chinese proposer.
Key elements of the agreement are:
- Placement of 9,090,909 shares at 33c,
- Price to be reset at November 30, 2012, to 26.9% above 5-day average pre-completion, with the agreement to be completed or terminated by December 22, 2012, and
- Post the completion, a representative of the Chinese investor will be offered a non-executive directorship.
Potash West’s managing director, Patrick McManus, welcomed the support offered by the Chinese group “as putting in place the elements for the full funding of the feasibility work to be carried out on our world-class Dandaragan Trough project.”
McManus, who has a degree in mineral processing from Britain’s Leeds University and an MBA from Perth’s Curtin University, has more than 30 years’ experience in operational, technical and corporate roles with Rio Tinto, RGC and Bemax Resources.
It’s all targeted at delivering a bankable feasibility study in 12 months based on the construction of a pilot plant in the new year.
The construction of a full-scale plant targeted at producing 250,000 tonnes of potassium sulphate (the preferred potash fertiliser in WA) is aimed at mid-2016.
Cortona valued at treble its current market price
The planned share-swap merger announced a month ago between our portfolio stock Cortona Resources (CRC) with Unity Mining was strongly endorsed in this column (October 24) but there has been little trade in the stock.
Cortona at the time was trading at 9c, giving its 268 million shares a market capitalisation of $24.12 million with about $2.5 million in remaining cash.
The larger and already producing Unity Mining (UML), with 505.3 million issued shares then priced at 13c, then carried a market capitalisation of $65.7 million. That was supported by close to $38 million cash at the bank plus cash flow from its operating Henty mine in Tasmania.
Today, Cortona’s share price has drifted to 8.8c a share and Unity Mining to 12c.
Under the merger plan, to be put to shareholders of both companies next month, Cortona shareholders will receive 0.732 Unity shares for every one share they hold in Cortona. That will give Cortona shareholders a 28% shareholder in the expanded Unity company.
Yesterday, Perth broker Focus Research announced a net asset valuation of Cortona shares at 27c – more than three times today’s share price of 8.8c.
The broker projects that price as a consequence of the merger being achieved and approved by shareholders at a meeting scheduled for December 21 at Perth’s Celtic Club.
David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.
The Speculator portfolio (as of November 20, 2012)
|Company||Code||No of shares||Bought||Purchase price||Current price||Current value|
|Image Resources||IMA*||20,000||31/12/2010*||$0.338 av||$0.190||$3,800|
|Robust Resources||ROL||6,000||31/12/2010*||$1.49 av||$0.520||$3,120|
|Scotgold Resources||SGZ||27,500||31/12/2010*||5.5 av||$0.065||$1,788|
|GoConnect Ltd||GCN||250,000||31/12/2010*||0.034 av||$0.013||$3,250|
|Broken Hill Prospecting||BPL||30,000||22/02/2011*||0.132 av||$0.095||$2,850|
|Cortona Resources||CRC||25,000||13/04/2011*||0.146 av||$0.087||$2,175|
|Golden Gate Petroleum||GGP||408,500||20/04/2011*||0.0145 av||$0.006||$2,451|
|Orpheus Energy||OEG||19,250||17/08/2011*||0.164 av||$0.065||$1,251|
|Black Mountain Resources||BMZ||10,000||17/04/2012||$0.300||$0.205||$2,050|
|Total value of portfolio||$48,281|
|Owe the bank||-$8,835|
|Portfolio change since January 3, 2012 (started with $50,000)||-21.11%|
|All Ordinaries change since January 3 2012 (then 4155.22)||6.07%|
|All Ordinaries close 20 November 2012||4407.5|