mining services strike it rich

Mining services strike it rich
Author: HELENA KEERS
Date: 05/12/2006
Words: 581
Source: AFR
Publication: The Financial Review
Section: Market Wrap
Page: 23


While small resource stocks have picked up in the past month, the speculative explorers remain a risky bet and fund managers prefer the companies that service the mining and industrial sectors.
"If you are a service provider to mining companies it means you're leveraged to mining cashflows. The next two to three years look very buoyant and healthy with total returns of between 15 and 20 per cent per annum," says Souls Fund Management chief investment officer Frank Villante.

And it's not just the companies like Ausdrill, which has a market capitalisation of $249 million, and returned 122 per cent over the year. Minnows have also delivered whopping returns. Austin Engineering, which is worth just $43 million, returned 311.3 per cent this year. Another clear leader is engineering services provider Orbital Corporation, which returned 100 per cent in the past 12 months. The shares, which leapt 14 per cent last week, closed unchanged yesterday at a record high of 20?. Last month Orbital raised $4 million via a private placement of 26.6 million shares at an issue price of 15? and is offering its shareholders the opportunity to buy up to $5000 worth of shares at 15?. If this offer is fully subscribed, it will raise a further $2 million.

The company announced at its recent annual meeting that the fund-raising would support growth and working capital requirements which have increased as a result of an expanding order book and a $500,000 fee the company agreed to pay to settle a legal dispute with Coles Myer. Its shares are trading at 160 times earnings.

Another company that looks set for a fund-raising is CCI Holdings, which provides services to coal mining. At the annual meeting last month chairman Peter Murray said sales were heading towards $66 million a year, an increase of $15 million each year over the past two years.

Mr Murray said the group, which fought off a 35? per share offer from Campbell Brothers this year, was on track for the 2007 forecast profits of $4.4 million to $4.6 million. The shares, which have climbed 83 per cent in the past 12 months, slipped back 7 per cent last week and closed down half a cent to 32? yesterday. They are yielding 4.5 per cent.

Drilling and blasting company Brandrill was also a loser last week as its shares slumped 8.5 per cent. This was despite Westpac upping its stake to 9.9 per cent from 8.8 per cent. At the end of October the bank had a 7.7 per cent stake.

Shares in the company trade below the 1993 issue price of 50? a share. They hit a year high of 25.5? in October but closed down half a cent yesterday to 21?. They are trading on a price earnings multiple of 7.9 times 12 month earnings.