|At a current spot price of around US$100 per tonne, iron ore miners are generating strong profits and margins.
Prices are buoyed by demand from China, which buys about two-thirds of global seaborne iron ore supplies, to support its infrastructure projects. There has also been a drop in supply from Brazil owing to the Covid-19 pandemic.
This is as good a time as any for Southern Alliance Mining, a Malaysian miner of high-grade iron ore, to begin life as a public-traded company, on 26 June.
The company will be the second iron ore play on SGX after Fortress Minerals (IPO: March 2019).
Summary of Southern Alliance's IPO:
|▪ The producer has an operating history of 12 years and a diversified clientele across steel mill and oil & gas subsea pipe coating customers
▪ The impact of COVID-19 on economic growth and the demand for iron and steel products is expected to be mitigated by government stimulus to support infrastructure projects and, in turn, steel demand in Malaysia and China
▪ 76,000,000 Placement Shares are offered, comprising 56,000,000 New Shares and 20,000,000 Vendor Shares at S$0.25 for each Share
▪ First day of trading -- 26 June 2020.
Southern Alliance Mining, headquartered in Pahang, Malaysia, has launched an IPO to raise S$19.0 million in gross proceeds.
The IPO is priced at approximately 6.13 times price-to-earnings based on the Group’s FY2019 audited profit before tax, which excludes the tax credit in FY2019.
At the placement price of S$0.25 per share and 489,000,000 issued shares, the market capitalisation is S$122.3 million.
In FY19, Southern Alliance Mining made a net profit of RM88.2 million (S$28.8 million), compared to a net loss of RM17.2 million in FY2018. Revenue surged 92.9 per cent to RM189.1 million in FY19.
The Chaah Mine, the Group’s primary mining asset located in Johor, Malaysia, has been in operation since 2008. As at 31 October 2019, the Group had produced and sold approximately 4.6 million tonnes of iron ore products from that mine.
The iron ore from the mine contains a low level of impurities which allows the Group to produce high-grade iron ore concentrate of up to Fe grade of 65% for steel mill customers.
In addition, the iron ore from the mine has unique natural characteristics such as high specific gravity and viscosity, which have made it a highly sought-after raw material for pipe coating companies in the oil & gas industry’s subsea segment.
Dato’ Sri Pek Kok Sam, CEO and Executive Director of the Group, said, “The IPO is a significant milestone for Southern Alliance Mining (SAM), and is an achievement for all at SAM. After years of dedication and hard work, we have built a proven financial and operational track record.
|"Our iron ore products are sold not only to steel mills but also to the oil & gas industry as raw materials for sub-sea pipe coating. This unique product mix brings us diversified revenue streams and market opportunities in two industry sectors.”
-- Dato’ Sri Pek Kok Sam,
CEO and Executive Director.
"Southern Alliance Mining commands a unique market position given our good and long-standing relationships with our customers in both Malaysia and China, our established operating system and logistics infrastructure, and the proximity to road networks and ports.
Dato’ Teh Teck Tee, Non-Executive Non-Independent Chairman of the Group, added, “Iron ore is widely known as the lifeblood of the global industrial base. Despite the recent economic impact caused by the COVID-19 pandemic, the demand and price for iron ore have remained stable.
|"Southern Alliance Mining is well-positioned to meet the demand for our high-quality iron ore products in the region upon the recovery of the steel and oil & gas industries as the stimulus measures are expected to drive demand."
-- Dato’ Teh Teck Tee,
Non-Executive Non-Independent Chairman
"As such, we are reasonably confident to proceed with our plans to conduct further exploration activities at the Chaah Mine and three other potential iron ore assets after our listing. We hope these will yield favourable results for us to meet market demand and drive our future growth.”
As at 31 October 2019, the total Ore Reserves for the Chaah Mine was 6.1 million tonnes at 51.2% Fe.
The Group has also been granted the right to carry out exploration and mining operations at three potential iron ore assets located in Johor.
|With the IPO proceeds, the Group plans to conduct further exploration at the Chaah Mine to define extensions to the existing Mineral Resources and Ore Reserves and to commence exploration work for mineral deposits at the exploration assets.
The IPO proceeds will also be used to invest in mining equipment and infrastructure, and potential acquisitions, joint ventures, strategic alliances and/or development of new mines.
The company also intends to recommend dividends of at least 10 per cent of FY20 net profit.
This is to rise to at least 15 per cent for FY21 and 20 per cent in FY22.
PrimePartners Corporate Finance is the sponsor, issue manager and placement agent for the IPO.