We'll go a waltzing Matilda David Hazlehurst 02/11/2005
Once a jolly prospector found heavy mineral deposits - probably under the shade of a coolabah tree - on the Tiwi islands. We'll be putting some shares in our tucker bag. David Haselhurst reports.
It's unusual that I find a “widows and orphans” stock to back in this column, but it looks like Matilda Minerals (ASX code: MAL) may come up trumps at present prices. Matilda, a heavy mineral sands prospector on the Tiwi islands, 60km north of Darwin, was one of our best punts in 2004. After visiting these pristine islands a year ago (B, Oct 19), we bought in at 22¢ a share. Before the end of 2004, they shot to 65¢ and we let them go at 51¢ in our end-of-year portfolio reconstruction.
This year, Matilda peaked at 73¢, but the shares have since drifted back to around 46¢ in line with a recent placement of 5.22 million shares at that price to raise $2.4m.
When Matilda listed in September 2004, after raising $4.5m in its float, the company had no reserves but a dozen targets detected by earlier prospectors on the west and north coasts of Bathurst and Melville islands which comprise the Tiwis. These islands are home to 2100 inhabitants and under the management of the Tiwi Land Council. In the 1950s, prospectors looking for uranium found numerous occurrences of heavy minerals. But with rich deposits of rutile and zircon being mined along the NSW coast near Newcastle, there was no attraction in exploiting remote finds.
In the past year, Matilda has established a reserve of 4.9 million tonnes on three locations, averaging 4.5% heavy minerals with a 1% cut-off grade and little or no over-burden. Valuable heavy minerals – zircon, rutile and leucoxene – comprise 88.2% of the ore. This is sufficient for a minimum six-year mine life generating a $9m annual cashflow after costs and royalties from year one of production. Capital cost is estimated at $2.5m, including a $2m wet processing plant on location.
Cashflow projections are based on world prices for zircon (now about $US750/tonne) and rutile-leucoxene (now about $US500/tonne) being maintained for several years. That is in line with recent projections from analysts such as TZ Minerals, which sees a supply shortage in zircon particularly for the next three to five years.
What does it mean for Matilda shares? With a projected cashflow of $9m a year, we could realistically deduct $700,000 for head office overheads, $1.5m for further exploration and $2m in tax, leaving $4.8m as net profit.
Matilda now has 48 million issued shares, which may rise to 52.3 million under a current shareholder-purchase plan to raise another $2m through an offer of 4.3 million shares. Despite the blow-out in shares, net profit would be equivalent to 9¢ a share and a 70% payout would be 6.3¢ a share. At 46¢ a share, the stock is selling on a lowly multiple of just over five times next year’s possible profit with a potential fully franked dividend yield of better than 13%. Those projections could be watered down lightly through the exercise of 7.7 million 2008 options at 20¢, held mostly by directors.
Nevertheless, the shares will be worth closer to a dollar when the market wakes up.
MAL Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
