tipped in pommyland

evilwebby - 7 Jan'05 - 09:14 - 672 of 673

CNM are one of IC's tips of the year:


CONSOLIDATED MINERALS (CNM)


Tip of the year 2005 - 111p - Aim - In December last year, Consolidated Minerals (CM) announced an increase in output from its Woodie Woodie manganese mine to 1m tonnes per year - originally, the plan had been for an expansion to just 800,000 tonnes. That move comes on the back of strong manganese prices, driven by increased steel demand from India and China. CM has underpinned its output rises with corresponding increases in the resource base, which show that, at current output levels, production should continue for at least another 14 years - and possibly much longer.

Such certainties reassure buyers looking to guarantee long-term supplies, and have helped CM lock in forward sales for 70 per cent of planned production to customers in India, China and Europe. At present, CM supplies approximately 5 per cent of the world's manganese requirements, with demand continuing to rise. The latest output increase should be completed by the middle of 2005, and won't come a moment too soon - a big chunk of 2004's rise in output has already been gobbled up by demand from India.

Overall, production from Woodie Woodie is set to rise by 60 per cent, year on year, from 600,000 tonnes during 2004 to 1m tonnes in 2005. That output increase came at a cost of A$6.5m, with payback expected within 12 months. In fact, the steep production hike is one reason why analysts have spent much of 2004 revising their share-price targets upwards. During the year, the share price was also buoyed by strong manganese prices, but CM isn't just a manganese play.

Output has been rising at its Coobina chromite mine, too - although defining the mine's life has proved difficult, and management attention has recently been focused elsewhere. With cash from the recently announced A$71.5m sale of a stake in Australian iron-ore miner Portman Mining, CM is acquiring nickel producer Reliance Mining for a combination of A$40m in cash and 13.8m new shares. The acquisition of Reliance seriously enhances CM's nickel asset base which, as the nickel price advances, has been steadily building through the acquisition of stakes in local operators Austminex and Mithril. However, Reliance, which is forecast to produce 5,000 tonnes of nickel for the year to June, is a different proposition altogether. These 5,000 tonnes should add A$90m in sales to CM's full-year results this year, according to broker Seymour Pierce, taking earnings up to 37A¢. In addition, there's also scope for output increases, and an annual nickel output of between 8,000 and 10,000 tonnes a year is on the cards. With substantial exploration upside added in - Reliance talks of 300,000 tonnes of in-ground nickel - the deal looks a good one.

Investors should also take note of the company's interest in the Mindy Mindy iron-ore project in Western Australia - a 50:50 joint venture with Australian peer Fortescue Metals. If that goes ahead, then broker Numis Securities estimates that the project could add as much as 55p a share to CM's net present value (the present value of the company's future net cash flows after subtracting any initial investments). At the moment, the broker has valued Mindy Mindy at A$60m - but if, as hoped, production begins in 2007, then the upside could be considerable.

Admittedly, CM's shares aren't widely traded in the UK, but plenty of big-name institutions hold stakes, including ANZ, JP Morgan, Westpac, UBS and Credit Suisse First Boston
It's also worth noting that, with considerable dependence on Chinese markets, a slowdown there could be detrimental. However, that's not a huge worry given China's robust track record for absorbing the world's resources. Add CM's prospects to an impressive dividend yield and an undemanding prospective share-price rating, and investors can expect the shares, which have soared during 2004, to keep on rising for a while yet. Buy.