consmin uk broker report

This is the latest research document from ConsMins EX UK broker Numis Securities.
CONSOLIDATED MINERALS – 103p buy 126p (from 117p) Earnings takeoff on higher Manganese & Chromite ore prices
Manganese ore prices jump a further 20% to $3.10 – 3.30 / mtu
Further evidence is emerging of higher manganese ore and chromite ore prices in China
Manganese ore prices: have jumped to $3.10 - 3.30/mtu according to the Metal Bulletin this week from $2.50 – 2.70 / mtu last week.
Analysts are likely to upgrade forecasts further as the market begins to appreciate the impact of the rise in manganese and chromite ore prices.
Consolidated Minerals management should have been aware of the strength of the manganese and chromite ore markets in China in recent months.
We believe that the Metal Bulletin published manganese ore price is beginning to catch up with domestic Chinese price levels which may have been at higher levels for some time.
Steel demand: for raw materials continues to rise generating further demand for imports of manganese and chrome ores for local ferromanganese and ferrochrome production.
Manganese ore: demand in China rose by 19% last year to 5.1mt representing nearly half total global consumption. Chinese steel production is forecast to grow by a further
10% this year with month-on-month production growth of 20% for February. We expect a similar rise in manganese ore demand.
Valuation : our valuation rises to US$622m for the group from US$564m as the value of the manganese business rises with increasing ore prices. Further valuation gains appear
likely as the company works through its nickel hedge book and begins to realise more of the nickel price. We have yet to raise our valuation for the chromite business as we are
awaiting confirmation of the new level for chromite prices in Europe and in China . We believe that Chromite ore prices in china may be around 80% higher than some transactions seen in South Africa .
Target price: we are raising our target price to 126p from 117p. This includes a 15% discount to our net present value calculation to account for the normal market which
we expect companies to have against our forecast valuations.
New estimates
Year to Sales PBT EPS Tax DPS Div. Yield FCF Yield Net Cash P/E
June ($m) ($m) (¢) (%) (¢) (%) (%) ($m) (x)
2006A 188.0 17.6 5.9 26.2 3.0 1.5 3.5 18.4 34.7
2007F 235.2 68.4 22.4 26.2 11.2 5.5 11.3 55.0 9.1
2008F 290.5 93.5 31.1 26.2 15.6 7.6 16.2 77.8 6.5
2009F 314.4 115.4 31.6 26.2 15.7 7.7 15.7 75.1 6.4
Old estimates
Year to Sales PBT EPS Tax DPS Div. Yield FCF Yield Net Cash P/E
June ($m) ($m) (¢) (%) (¢) (%) (%) ($m) (x)
2006A 188.0 17.6 5.9 26.2 3.0 1.5 3.5 18.4 34.7
2007F 225.1 59.2 19.4 26.2 9.7 4.8 9.9 48.5 10.5
2008F 252.2 58.9 19.6 26.2 9.8 4.8 10.5 51.3 10.4
2009F 303.5 106.8 28.9 26.2 14.3 7.0 14.4 69.4 7.0
Numis Securities does not act as UK broker or advisor but does act as a market maker to Consolidated Minerals
ANALYSTS: JOHN MEYER 020 7260 1279 / MARC ELLIOTT 020 7260 1232 / SIMON TOYNE 020 7260 1330