THE recent slump in the share price of coal and silica miner Petmin represented an excellent buying opportunity up to 37p (about 500c) a share, Numis Securities said in a note to clients yesterday.
Petmin’s shares were trading 20c firmer at 390c on the JSE yesterday after a single deal of only 700 shares, while they were unchanged at 22p (297c) on London’s AIM, showing a significant arbitrage gap.
Petmin’s main assets are its open-pit silica and chert mine at SamQuarz in Mpumalanga; the Springlake anthracite colliery in KwaZulu-Natal; and the newly opened Somkhele, near Richards Bay.
In November, Petmin acquired a 25% stake and Kermas Group a 75% stake in the Veremo project, a substantial iron-ore deposit near Stoffberg in Mpumalanga, which would help to advance Petmin’s strategy of becoming a multi-commodities minerals business, it said.
Numis Securities analyst Simon Toyne said Petmin was expected to increase earnings 55% to 1,7p per share in its current financial year to June, and a further 47% to 2,5p next year.
Strong growth would continue until 2012 as Petmin’s Somkhele anthracite project moved towards full production.
Beyond that, the group’s stake in the Veremo iron-ore project would help to drive earnings.
Petmin was well placed to capitalise on favourable market opportunities in the coal sector this year, particularly in anthracite, Toyne said. The high-quality anthracite produced by Somkhele could be used as a substitute for coking coal in smelting but it was trading at half the price, which was likely to change.
Numis could also value the Veremo project significantly higher if it used spot prices rather than long-term forecasts and if Petmin and Kermas decided to extract titanium dioxide from the pig iron plant’s slag, which was not included in their resource estimates.
© 2008 Petmin Limited