a lot of people with CFDs got out because of risks. MMX is good value at these prices.
Merrill Lynch:
Financials adjusted for issue, and Q4 cash report preview We maintain our buy $7/sh price target on our new valuation metrics which has NPV down 1% to $5.79/sh on our estimate of the recent issue and on a larger June half operating loss following a closer examination of the quarterly cash report to March. We still see potential valuation upside to $9/sh if the company delivers the project milestones expected, and additional upside potential if the JV ends up owning the infrastructure. At time of writing, we do not know the exact outcome of the issue. Infrastructure ownership fight no impact on our view Infrastructure is a benefit to MMX, but from our view, is irrelevant to our current valuation and price target, because we never placed a positive value on the infrastructure asset. We believe the Mitsubishi deal will stand with or without infrastructure. Three way fight for the infrastructure Murchison (MMX) and Midwest (MIS) and now WestNet have submitted proposals to own and operate the infrastructure through various structures. We document the timeline that led to this situation, and show maps of the various proposals. Trend eps x 14.5+$5.17/sh today, plus cash of $2.85/sh We are forecasting 0.63cps earnings in 2013, which is a long way out. MMX should trade on around 14.5x those earnings (because they are based on trend iron ore prices) which prices MMX at $9.10/sh. Discounting to today at 10%pa, that share price has an NPV of $5.17/sh. In addition, MMX should potentially return spare after tax cash of $2.85/sh in H1 2008E. The discounted 2013 share price and the cash total $8/sh, or $9/sh if no tax is paid on the sale.
Issue to promote next growth story Issue a rare opportunity for flow in tightly held stock Murchison is raising $100m through a non underwritten placement, priced by book build, for corporate purposes. We have a price target of $7/sh, an NPV of $5.79/sh on conservative assumptions, and realistic valuations on NPV and PER that point to $9/sh in 12mths, excluding the value of any infrastructure assets. We have assumed 18m shares were issue to raise $100m. We have also checked our FY07 estimates with the March Qtr cash flow statement, and decided to increase the level of fixed cash costs in the 6mths to June 2007. As a result, earnings in A$ have been reduced by $10m in 2007, due to increased start up costs and need for working capital at Jack Hills Stage 1. We believe earnings in the forward years benefit at this stage from the additional interest income from the issue, but this is likely to be spent relatively soon. The NPV has slipped 1% from $5.85/sh to $5.79/sh due to our assumption that the issue is at a discount to our NPV (ie dilutive), and also due to the higher operating costs factored into the 2007 and 2008 Stage 1 start up. The Quarterly cash flows are discussed in detail later. Issue to be used for potential acquisition, not infrastructure In comment quoted Sydney Morning Herald, Executive Chairman Paul Kopetjka said that the issue would be “good news, and that Murchison was preparing to enter its next phase, which could include an expansion (ie acquisition - ML) into other steel making materials and perhaps coking coal and manganese”. Good track record of spotting resource potential We believe the raising has little to do with the Jack Hills iron ore project, and much to do with the next leg of the company’s share price growth. The management have a track record of spotting resources assets with potential, and we believe this issue is likely to be used to seed a growth opportunity, that depends on action now, rather than after the final cash from the Mitsubishi buy in receipt around March 2007.
MMX Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
