digging deep for hidden value - herald-sun

Digging deep for hidden value John Beveridge From: Herald Sun November 30, 2010 12:00AM

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THE share market is marvellous at splitting four into two equal parts, each worth three.And sometimes the reverse.
The reason for this puzzling sum is hidden value, in which a company's main asset is used to value the shares, with the rest of the company running for nothing.

Once the neglected assets are spun out and the separate values recognised, the sum of the parts can be worth much more than the previous whole.

A classic case in point is Minemakers, which has been valued solely on the value of its Wonarah phosphate deposit in the Northern Territory and other offshore phosphate holdings.

To get over that problem, the company first tried to take a stake in the Beaconsfield gold mine to bulk up a float of its Tasmanian assets.

That deal soured and now Minemakers is planning to float its Tasmanian projects anyway as a new company called TNT Mines.

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Included within TNT will be five former tin or tungsten mines, a tin deposit and the Moina deposit which contains fluorspar, magnetite, tin, tungsten and bismuth.

Most of the old tin and tungsten mines were closed due to low mineral prices rather than low ore grades, so the idea is to use about $10 million raised in the TNT float to revisit them.

Similarly, TNT would look to develop Moina, which one consultant has claimed could be the world's largest undeveloped fluorspar deposit. Fluorspar is used to produce steel and aluminium.

The plan is to raise $10 million, assign about 40 per cent of TNT shares to Minemakers shareholders plus a priority chance to invest with about 20 per cent of TNT held by Minemakers at the corporate level.

Intersuisse research has given the planned split a big thumbs-up, calculating the net present value of the combination at $1.82 per Minemakers share, compared to yesterday's close of 35c.

That may be a little high, but given that most of the old mines still have significant ore estimates on old exploration and Moina has the potential to become a significant mine, there is a good chance of an explosive reaction for TNT Mines.

Which makes Minemakers a speculative buy to get exposure to some of that hidden value.
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