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Macarthur Minerals a Cliffhanger for Speculative Investors?

Macarthur Minerals a Cliffhanger for Speculative Investors?
An increasing number of small and mid-cap mining companies are listing on the ASX in 2017, but how many can actually survive?
May 23, 2017 By Simon Herrmann Tags: IPO

Iron ore and lithium exploration company Macarthur Minerals seeks to list on the ASX with the ticker code MMM.

An increasing number of small and mid-cap mining companies are listing on the ASX in 2017 as the outlook for the metals and mining sector continues to brighten driven by price stability in commodities. However, the deals that we have seen so far this year have been average at best. The increase in IPOs is predominantly sentiment driven and the performance of these companies will largely depend on whether the recovery in commodities is sustainable. By the end of the year the number of mining IPOs could exceed 30 or even 40, but how many can actually survive? 

The coming listing of Macarthur Australia (MMM.ASX) is interesting due to its strategically located assets as well as existing lithium and iron ore projects. Macarthur Australia seeks to raise up to $10 million to fund exploration of its lithium projects and the development of its advanced iron ore assets, the Ularring Hematite Project. The lithium assets are at a very early stage and could attract some level of interest, although the ‘lithium boom’ could already be at a mature stage.

The main catalyst, however, is the potential of a corporate transaction. Macarthur’s iron ore assets are located adjacent to the Koolyanobbing Mine of Cliff Natural Resources (CLF.NYS), a major iron ore miner, albeit financially strained. Cliff is a US$1.7bn company listed in New York whose stock has fallen from near US$100 in 2011 to less than US$7 per share. Cliff is fully geared with debt matching its current market cap and given the company’s balance sheet pressure there is impetus to “play ball” with neighbouring companies holding synergistic assets. In Macarthur’s instance - we anticipate it’s Ularring Hematite Project could benefit from the aging nature of Cliffs Koolyanobbing Mine - which we understand is in need of a boost to its reserves.

In 2015, junior miner Champion Iron (CIA.ASX) agreed to buy the Bloom Lake mine in Quebec from Cliffs Natural Resources for $C10.5 million at a low point in the cycle. The opportunity only presented itself due to the downturn in prices and the financial struggles of Cliff. Champion Iron’s share price has increased five-fold since the acquisition and the recent Feasibility Study confirms that the project is financially viable and competitive in the global market.

Taking into account all aspects, the listing of Macarthur is possibly not suitable for risk-averse investors as a speculative appetite is required. However, as a joint venture or any other corporate transaction offers the potential for upside, we believe this IPO is worth another look.

Shares on Offer: 50m
Listing Price: $0.20
Market Capitalisation: $37.7m
Listing Date: June 2

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Simon Herrmann Author: Simon Herrmann May 23, 2017

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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