News and Charts for PETMIN MINING

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28 December 2006 09:20:16
Buy Petmin
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The owner of South Africa's largest Silica mine, Petmin, listed on AIM on December 20th. Petmin was a closely followed IPO for various reasons. The group owns profitable coal and silica assets in South Africa and has been listed on the Johannesburg Stock Exchange since 1986. It changed its business from granite to gold in the 1990s and to silica and anthracite mining last year. Its shares have nearly trebled over the last 18 months on the back of positive newsflow and Petmin enjoyed a successful debut on AIM with shares listing at a premium to the placing price of 9p.

Petmin was incorporated in 1972 and listed on the Johannesburg Stock Exchange under the name Bakoven. The group has a long history of corporate transactions and has endured many changes in its business model since its inception. In 1990 it was a cash shell until Petra Granite reversed its granite business into Bakoven. After a number of corporate transactions, Bankoven sold its granite assets and bought gold mining interests and subsequently sold them again. The shell was bought by SamQuarz. In February 2004, Midnight Storm Investment Holdings acquired Pretklerk's and SamQuarz's stake in the company and replaced the existing management team. Since, the company has turned itself into the largest producer of silica and anthracite in South Africa. The company issued 40 million shares at 9p per share, raising net proceeds of 2.67 million pounds and valuing the company at 43.19 million pounds.





Operations - Petmin has a strong portfolio of projects in South Africa. It acquired Samquarz in 2004, the largest silica mine in South Africa which has been operating since 1995. In December 2005, it acquired Springlake Colliery, the largest producer of anthracite in South Africa. Finally, in December 2005, Petmin acquired Somkhele, a high quality anthracite project which is expected to start producing in January 2007. Somkheleis expected to start throwing off cash in the second half of 2007. Petmin also owns a 50% interest in Baobab JV but it has entered into an agreement to sell it's stake to GVM Metals for 2.5 million pounds. However, this agreement is subject to shareholder and government approval.

The company is the top supplier of anthracite and silica to many companies. Its customers include blue chip names like Xstrata South Africa, Samancor, Assmang, Glass South Africa and Consol. It exports the coal that is extracted from Springlake Collery to Brazil, Spain, Turkey, Ireland and Belgium. The numbers are very impressive, for the year to 30 June 2006, Petmin increased its revenues and pre-tax profits by 200% to 12.6 million pounds and 1.8 million pounds respectively - that equates to earnings of 0.72p per share. As at 30 June 2006, the company had cash at bank of 5 million pounds and a positive working capital position of 5.5 million pounds. The current trading prospects of the company are encouraging. Commodity prices are relatively stable - indeed they have enjoyed a slight uptrend. Petmin believes that a stable market for silica and rising demand for anthracite combined with its relationships with key customers will protect it from commodity risk. Glass South Africa, one of its major customers, is planning to complete a second float-line in April 2007 and if this is successful, it should boost sales to 128,000 tonnes in 2007 and 170,000 tonnes in 2008. Petmin has signed an agreement to sell 235,000 tonnes of anthracite to customers in Brazil and Europe in 2007. The directors believe that the growth of the ferroalloy industry will ensure a good start for its Somkhele mine operations with good demand and many customers.


Business development - Petmin's mission is to create an international multi-commodity minerals business through organic growth and suitable acquisitions. It operates in a niche area and has already established itself as a leading producer of silica and anthracite in South Africa. It is cash-generative, profitable and owns a promising mine, Somkhele, that should produce high-quality anthracite and in the long term provide greater access to South Africa's metallurgical markets. The company has a very strong and diversified customer base and good relationships with South Africa's leading plate and clear glass manufacturers which should ensure strong demand for its assets. Petmin has a solid management team with a proven track record for creating value for shareholders and improving operating efficiency through disciplined individual performance indicators. Finally, it has a strong balance sheet with the cash that should enable it to pursue its domestic and international growth plans.

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Management - Pieter Johannes Nel is the non-executive chairman of Petmin. He is a qualified geologist and has been managing director of Petrex, a subsidiary of Bema Gold Corporation and Venmag, a magnesia mining company. He joined Petmin in 1989 when Pretklerk Beleggings acquired the control of the company. Ali-Asnath Lebogang Kelebogile Mogotsi is the deputy chairperson and executive director of Petmin. She is a director of Lebone Resources and has previously worked with Virtual Metals Research and Consulting. She is an independent non-executive director of Merafe resources and has gained her experience working for AngloGold Ashanti where she worked as marketing manager and executive assistant. Jan Christoffel du Perez is the CEO of the company. He is a chartered accountant with Deloitte & Touche and was an executive director at JIC Mining services. He has held managerial positions in Petmin since 1992. Bradley Barry Doig is the COO of the company. He joined the company in November 2005 as non-executive director. He was previously an executive director of Decorum Capital Partners and has 10 years experience with BHP Billiton. David Herman Warmenhoven is an executive director of Petmin and was previously the CEO of the company from 2004 to 2006. He is a qualified attorney and was previously an executive director at JIC Mining Services.

Conclusion - It is estimated that the total value of the mines based on existing resources is about R869 million (62 million pounds with an exchange rate of 1 pound = R14). The market capitalisation at today's 11p is 52 million pounds. As such the current share price fails to discount the value of existing assets let alone the corporate upside which this management team has a record of delivering. Buy.

Contact details – Numis Securities – 0044 207 776 1500