Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (31048)	1/12/2009 12:11:33 PM
From: LoneClone	Read Replies (1) \| Respond to of 194000

Chromex Keeps Its Head Above Water With New Plans For The Stellite Chromite Mine By Alastair Ford minesite.com What’s it like in the chrome business at the moment? Anyone who’s followed the ups and downs of International Ferro Metals (IFM) over the last couple of years will by now have some idea that all is not currently rosy. John Meyer of broker Fairfax chose IFM as his stock pick of the year for 2009 at our Minesite Christmas forum this year, but then again anyone who’s followed either IFM or John’s own recommendations will know that he was a buyer all the way up to IFM’s all-time high of just over 160p, and that he was a buyer all the way down again. The shares are currently bumping along at around 18.5p, which, to be fair to John is one or two percentage points above where he recommended them. So he’s not off to a bad start this year, at least, though like the rest of the world, he’s starting off from a very low base. London hasn’t got many other chrome companies to set IFM against as a comparison. Even Chromex, a dedicated chromite miner, doesn’t really compare, because unlike IFM, which runs all the way up the value chain to the tune of owning and operating its own furnaces, Chromex is sticking fairly close to the bottom end of the value chain by simply mining, and then conducting some basic beneficiation on the resultant ore. But what’s noteworthy at the moment is that while IFM hit the headlines because it’s shut down its furnaces “in response to falling demand”, and particular weakness in China, the news from Chromex hasn’t been half so bleak. Because the company has added less value up the chain, there’s less value to come out going down the chain. Hence IFM is close to joining the 90 per cent club with its share price drop over the past six months while Chromex’s shares have merely halved. Alright, the market value of Chromex’s product has dropped by nearly 75 per cent. But Chromex chief Russell Lamming is fairly sanguine about that. “We need to play with in the new rules. You’ve got to be able to operate through the cycle”, he says. The key fact is that the company is still making money in the current market, and has a £2 million cash reserve sitting in a bank in London just to reassure anyone who’s sceptical about prevailing conditions. The next set of financials will be out in a month or two so we’ll know more then. In the meantime the company has just announced that it has finalised plans to build a new processing plant at its Stellite chrome mine on the western limb of South Africa’s Bushveld. The new facility will allow Chromex to produce chemical grade and metallurgical grade sands in addition to the chrome ore that the company is already producing. It’s being funded by a £2 million loan from a South African private equity group on terms referred to by Russell Lamming as “market-related”. Fair enough, if it adds value to an already profitable operation. Because although production at Stellite is somewhat reduced at the moment, in response to the weak market, the company emphasised once again, in the same announcement, that the project is nevertheless being mined profitably and that it has “a robust nature”. That view is supported by recent research from broker Blue Oar which forecasts profits after tax for Chromex of £900,000 for the year to September 2009 and £1.7 million the following year. The key next step for Chromex will be the nailing down of two off-take contracts currently in negotiation for the sale of the company’s ore, and of an additional contract currently under discussion for the chemical grade sand. Chromex won’t make a move on the processing facility until these are locked away, but assures one and all that “an update on these developments will be provided in due course”. Are things tough? Well, yes, says Russell Lamming, margins are much tighter. “But this is the business you’ve got”, he adds philosophically. The strike price on the convertible loan from the South African private equity company is 22p, slightly north of the current 20.5p. Back when John Meyer was recommending IFM shares, Chromex was trading at around 15p, so it’s already up by 33 per cent since early December. No wonder one or two optimistic people are starting to crawl out of the woodwork. Anyone would think they were calling the bottom of the market and that it was late November, early December. Whether correctly or not, only time will tell.