consmin consolidation then growth

Consolidation, then growth

Clive Henley

April 30, 2007 12:00am

THROUGHOUT its long history on the stock exchange Consolidated Minerals - first listing in 1969 - has kept a relatively low profile.

It has survived a number of market booms and busts. A new chapter in its history is unfolding now with a scheme of arrangement on the table.

The proposal by British-based Pallinghurst and AMCI is to form a new ASX-listed resource company.

Shareholders in CSM have been offered $1.38 and two shares in the new company for every five CSM shares. This offer equates to around $2.30 per CSM share.

It is opportunistic and well timed, coming as it does after a 2006 profit impacted by depressed manganese prices. It also does not reflect an adequate premium for a change in control at CSM.

The company mines manganese and chromite near Port Hedland in Western Australia and nickel at Kambalda. Like nickel, manganese and chromite are raw materials for carbon and stainless steel.

CSM also has a 20 per cent interest in the Jaguar copper project near Leonora and an iron ore project in a joint venture with Fortescue Metals.

Following a loss in fiscal 2006 earnings are set to jump this year. Forecast earnings for 2007 equate to 17.6 per share with a dividend of 4 forecast placing the stock on a 1.6 per cent yield at prices around $2.50.

Forecasts for the 2008 financial year are for earnings per share of 39.8; a prospective price to earnings ratio of a low 6.3 times.

The injection of new blood into the company appears a definite positive.

Pallinghurst Resources is a natural resources investment vehicle chaired by Brian Gilbertson (ex-BHP Billiton).

From a technical standpoint the price action in recent times shows that the shares suffered a steady decline in line with retreating earnings in 2005-06.

From a high of $4.40 in August 2005, a low of $1.60 was reached in June 2006. Things have since improved.

First, in October last the downtrend was broken following a strong rally to $2.50.

This, when combined with the fact that the target from the top of $1.80 had been met and exceeded last June, is a bullish sign.

Recently a new high at $2.70 represented the breakout of a base pattern with a short term target of $3.80 and possible longer term target of $4.80.

Some recent weakness is finding support at $2.50 which appeals as an attractive purchase point with those willing to take some risk.