Cambrian Mining Starts To Make Sense To Investors As It Becomes A Producer
By Our Man In The City
minesite.com[tt_news]=46124&tx_ttnews[backPid]=762&cHash=bebbbf101e
With the formal offer for Coal International now on the table, Cambrian Mining is gearing up for its transformation from investment house into producer. Heard this story before? That’s because Cambrian has been peddling aspirations for the same strategic shift for over three years. Chief executive Mark Burridge acknowledges the long period in which Cambrian has be trying to reposition itself, saying: “These things take a long time.” When chairman John Byrne was chief executive, it is fair to say that Cambrian kept changing its mind about the commodity of choice for the company. One minute it was coal, the next iron ore and then nickel. It wanted diversification, but investors couldn’t really work out what Cambrian stood for.
Mr Burridge had barely taken his coat off after formerly taking over as chief executive in July 2007 before initiating a review of the business, the fruits of which are now being realised. “Turning a broad statement to be an operating mining group into a plan requires significant work. You have to weigh up the alternatives and know what you really want to achieve,” he says. Coal is now the priority focus, particularly metallurgical coal as it strives to capitalise on growing demand from steel producers.
Cambrian wants to take its 34.38 per cent stake in Coal International to full ownership. It is offering one new Cambrian share for every 3.25 Coal International shares. Exactly what it plans to do post acquisition has yet to be revealed. Mr Burridge is keeping tight lipped and the presence of its adviser Landsbanki on the phone call with Minews “for policing purposes” shows that the chief executive doesn’t want to upset the financial regulators during the offer period by promising too much. What he does confirm, however, is that an unspecified investment will be made into Coal International. Rising costs have been a worry in the acquisition target and it is still loss making, so keep spending money in the hope of eventually making money appears to be chosen route. That said, it obviously means business as a recent company presentation reveals that Cambrian wants Coal International to increase production from 780,000 tonnes in 2008 to 1.7 million tonnes of coal this year and potentially 2.8 million tonnes in 2009.
The plan is to “realise value” from its stakes in Western Canadian Coal and Xtract Energy by the end of 2008. With the coal price where it is at the moment, the 46 per cent stake in the former could fetch a handsome price. The future for Xtract is more clear-cut as it will either sell the 50 per cent stake for cash or distribute the shares to investors. “A lot of Cambrian shareholders came in because of the blue sky assets, mainly energy like Xtract,” says Mr Burridge. “It’s only a small component of Cambrian but it is important that we give people a way to still participate in this area, which is why share distribution is under consideration.”
A combined 50 per cent stake in Welsh coal miner Energybuild by Coal International and Cambrian will be maintained at the current level. A US$1 per tonne royalty on GCM's Phulbari coal mine in Bangladesh could prove useful if the project ever gets into production. A 5.84 per cent holding in nickel group Vulcan Resources is likely to be disposed of, leaving one non-coal asset in the picture. The fully-owned AGD Mining will become the odd-one-out within Cambrian as it is focused on gold. “We’re pretty active with gold exploration in Australia at the moment. AGD will stay put, at least until we’ve expanded the reserves and resources,” says Mark. With speculation that the gold price will soon bounce back over US$1,000 an ounce, it’s easy to see why Cambrian wants to hang on to AGD.
Until the Coal International transaction is completed, Mr Burridge says the company will focus on wrapping up the strategic review. Come 2009 and Cambrian should be a leaner company, ready to address both organic growth and test the water for new deals. “We’re not actively in the acquisition mode now, rather a consolidation and restructuring mode,” says Mark. “In six months’ time, we should be able to begin what most mining companies should be doing and looking for growth opportunities.” Maybe then it will start to command a better rating on the stock market, rather the discounted valuation it has suffered from being too complex and diverse in the past. |
