MRE - Minara Resources

[Thrive]

Hi,

As an investor in MRE I'm interested in the following:

1. MRE's ability to produce nickel
2. How it's produced and at what cost
3. Demand v supply
4. LME price of nickel
5. Those interested in MRE

1/ MRE has had a history of problems getting to its nameplate production of 40,000t of nickel and the recent WA gas issue has not helped. However the gas issue is short term and production is now at full capacity with the increase in energy cost hopefully short term so nameplate production is still a realistic short term target (24k nickel MRE).

2/ From what I can gather sulphide nickel is cheapest and is best positioned on current nickel prices however its becoming more rare. Nickel pig iron is becoming more common however it has a big demand on energy making it not cheap to produce ($18kpt sounds close to production cost). Lateritic nickel (MRE) is more common however sulphur is needed and sulphur prices have soared putting LME nickel prices close to production costs.

3/ LME nickel stocks are high and metal producers are saying there is less demand as they move toward stainless steel products requiring less nickel. However LME nickel stocks have fallen from 48k to 43k in the last two months.

4/ Current LME nickel prices would be hurting producers with increased sulphur and energy costs (lateritic and pig iron) however I believe this is a dramatic fall from unrealistic prices of $30-55kpt seen in the second half of last year. You would think the cost of production would create some bottom to LME nickel prices and I think we're there heading towards a balance around $22kpt.

5/ Director increasing his interest @ $5.85 in May, $3.30 and $3.00 in June and Barclays recently increasing their interest to 8.45% at an average price of $3.62 gives me some confidence.

Summary: MRE has a massive resource and its heap leach project providing it works and within costs will reduce its production costs and increase production. Glencore has a massive interest in Murrin Murrin with a 40% interest in project and another 53% in MRE which is almost a 72% interest in Murrin Murrin.

Lets not forget that cobalt prices are still around 90kpt and MRE produced 300t last quarter.

Whilst I think MRE is hurting at the moment I think it is short term hoping LME nickel prices improve, AUD/USD hits 90c, heap leach project works and sulphur prices retreat.

Assuming Glencore sees future value in nickel they must be thinking now is a good time to move on the remaining 28% interest in Murrin Murrin (maybe what Barclays is thinking).

IMO MRE's SP has bottomed assuming the LME nickel price finds support and sulphur prices retreat.

MRE market cap is now just over $800m making the 28% of Murrin Murrin not owned by Glencore only $376m.

Please advise if I have an of this information wrong as this is what I'm basing my hold decision on.

 

[Miner]

Hi,

As an investor in MRE I'm interested in the following:

1. MRE's ability to produce nickel
2. How it's produced and at what cost
3. Demand v supply
4. LME price of nickel
5. Those interested in MRE

1/ MRE has had a history of problems getting to its nameplate production of 40,000t of nickel and the recent WA gas issue has not helped. However the gas issue is short term and production is now at full capacity with the increase in energy cost hopefully short term so nameplate production is still a realistic short term target (24k nickel MRE).

2/ From what I can gather sulphide nickel is cheapest and is best positioned on current nickel prices however its becoming more rare. Nickel pig iron is becoming more common however it has a big demand on energy making it not cheap to produce ($18kpt sounds close to production cost). Lateritic nickel (MRE) is more common however sulphur is needed and sulphur prices have soared putting LME nickel prices close to production costs.

3/ LME nickel stocks are high and metal producers are saying there is less demand as they move toward stainless steel products requiring less nickel. However LME nickel stocks have fallen from 48k to 43k in the last two months.

4/ Current LME nickel prices would be hurting producers with increased sulphur and energy costs (lateritic and pig iron) however I believe this is a dramatic fall from unrealistic prices of $30-55kpt seen in the second half of last year. You would think the cost of production would create some bottom to LME nickel prices and I think we're there heading towards a balance around $22kpt.

5/ Director increasing his interest @ $5.85 in May, $3.30 and $3.00 in June and Barclays recently increasing their interest to 8.45% at an average price of $3.62 gives me some confidence.

Summary: MRE has a massive resource and its heap leach project providing it works and within costs will reduce its production costs and increase production. Glencore has a massive interest in Murrin Murrin with a 40% interest in project and another 53% in MRE which is almost a 72% interest in Murrin Murrin.

Lets not forget that cobalt prices are still around 90kpt and MRE produced 300t last quarter.

Whilst I think MRE is hurting at the moment I think it is short term hoping LME nickel prices improve, AUD/USD hits 90c, heap leach project works and sulphur prices retreat.

Assuming Glencore sees future value in nickel they must be thinking now is a good time to move on the remaining 28% interest in Murrin Murrin (maybe what Barclays is thinking).

IMO MRE's SP has bottomed assuming the LME nickel price finds support and sulphur prices retreat.

MRE market cap is now just over $800m making the 28% of Murrin Murrin not owned by Glencore only $376m.

Please advise if I have an of this information wrong as this is what I'm basing my hold decision on.

Dear Thrive

First of all thanks for putting such a comprehensive true picture on MRE and NIckel Market.

I believe all you said is correct and meaningful.

I did not realise one of my colleagues has actually worked in Murin Murin plant for few years and that person confirmed me today about the name plate issue. Ironically I saw your posting tonight and your query on name plate capacity.

Yes, achieving production as per name plate is a long standing issue for MRE. However from Andrew Nickel Plant to current stage has seen a lot of improvement. I believe from discussions with ex MRE personnel that once gas comes back unless Ni demand drastically falls, it will be in black. Th massive investment in major maintenance program will also see the benefits.

So I am keeping my eyes open to see for come November.

Thanks again for your posting

 

[So_Cynical]

Nice Post Thrive

And well summed up...other factors in MRE's favor are the credit crunch
combined with low nickel prices, will delay development of other Lateritic
deposits (reducing future world supply) and the fact that MRE actually
produces Nickel Briquettes, a finished product...unlike MCR and IGO

40 year mine life, and world top 10 producer status means MRE is Australia's
premier Nickel play....and that's gota be worth something....well more than
the current SP...long term.



IMO

 

[oldblue]

Yes, good post, Thrive.
Pretty well sums things up as far as my limited knowledge goes.
I'm not really a techie as such, but I'd be waiting to see a bit of strength in the SP before buying. On the other hand I'd be prepared to hang on to an existing holding.

Disc: Not a holder but have positions in MCR and PAN.

 

[McNovice]

I'm thinking this baby is on it's way back up.

Some good previous posts, and with Sulphur on a high which should be sorted mid next year they say, The Gas problem soon to be sorted and not having to pay large prices for replacement Gas, I think give this one 6 months and it will be back near it's price prior to the explosion, it has taken one hell of a beating.

Hoping again

 

[renim]

one other name to consider - voisey bay
a decade ago it was the great northern monster that would reduce ni cost base by 25%, but it died....
recently i heard that its now into initial production.

 

[So_Cynical]

one other name to consider - voisey bay
a decade ago it was the great northern monster that would reduce ni cost base by 25%, but it died....
recently i heard that its now into initial production.

Seems to be so.

http://vinl.valeinco.com/

Its a big sulphide type deposit in Canada...full production in 2011, its developing underground
and would be producing at a similar cost to similar Aussie operations.

 

[So_Cynical]

31/07/08 I'm thinking this baby is on it's way back up.

:sheep:

Today's 20% fall on no announcement or news has to be some sort of a record for
an ASX100 miner....i would think its unprecedented.:dunno:

Anyway ive been reading old ann's...going back to 2003 when nickel and cobalt prices
were substantially lower than they are now (even with the recent cobalt drop) and back
then MRE was profitable.

I just cant see why they wouldn't be now.:dunno:

I think ill average down tomorrow.:dunno::bonk:

 

[tulasi74]

:sheep:

Today's 20% fall on no announcement or news has to be some sort of a record for
an ASX100 miner....i would think its unprecedented.:dunno:

Anyway ive been reading old ann's...going back to 2003 when nickel and cobalt prices
were substantially lower than they are now (even with the recent cobalt drop) and back
then MRE was profitable.

I just cant see why they wouldn't be now.:dunno:

I think ill average down tomorrow.:dunno::bonk:

Are MRE still profitable? I read something that talked about rising sulfur prices having a huge impact on their costs and MRE laying off staff to combat that?

I guess all commodity prices have gone down recently because there are fears that demand will slow down and there is excess supply. All this will do is drive some small producers out of business through which supply will be eased and once again there will be equilibrium.

I think it was last Feb when there was a huge correction in commodities based on demand fears from China which was later unproven.

The market always overreacts on the downside very quickly but slowly corrects. So in time the price will be back up. Huntley's on Etrade are recommending this stock for trading only and I tend to agree.

 

[colin065]

Hi all:

hope we all make profit in MRE in the long run.

A friend of mine is running a factory producing sulphuric acid, he has just had this industry seminar based in China. people in the seminar all rekon that the sulphur price is going to drop in the next half year, mainly because china is going to decrease the amont of fertilizer produced aiming environmental improvement. this will drag down the sulphur price.

just wondering why there is almost nothing about MRE on AFR? and since Barclays has increased holding in MRE again, there must be a strategic reason to invest more in MRE. personally i am willing to hold MRE for long term investment, but i think in short term my account is going to be in red....

Half year report is due 20/08/08, hope it will impress us.

Happy trading to you all

 

[Thrive]

Thanks Colin065

Sulphuric acid has been a difficult one for me to understand:

Where it comes from and how it's produced
Who needs/uses it (I know Minara needs it)
Why has the cost increased so quickly (no doubt supply/demand related)
When will it ease and why

I hope your friend is right - do they get a staff discount? Minara might be interested

The half year report will be interesting (cant say I'm not nervous). A 20% fall in one day makes buyers and holders worried especially with no recent news.

I'm now trying to determine bad v good news. Half year profit is no doubt going to be less than $184m (thats half last years) but hey at the current market cap it should be.

At the current $1.49 SP to achieve a 10%pa EPS we're looking at 7.5c or $35m before tax profit for the half (I think thats right). Is this fair before outlook consideration?

$35m and a positive outlook will be enough for me to hold unless convinced otherwise.

Nickel continues to fall however the AUD has also dropped to 91.5c

Cons - Nickel continues to fall and it is said demand is weak
Pros - AUD is now down to 91.5c softening the fall in Nickel prices, Colin065 gives me hope on the high cost of sulphuric acid and Newcrest (NCM) announced today they are now using Apache's gas (albeit 50%) so MRE might also revert back to a cheaper supply of energy.

Outlook - a cheaper energy supply by mid August, increase in production, increase in demand (hopefully) due to seasonal low, lower sulphuric acid costs.

Lets say you were Glencore and things do start to improve for Nickel what would you do? Shareholders could lose out big on a Glencore takeover bid at these levels.

Nameplate production + 22kpt US Nickel price + 90c AUD + cheaper sulphuric acid + cheaper energy = happy Thrive MRE investor.

Sorry for the ramble.

Thrive

 

[So_Cynical]

MRE is also a top 5 world Cobalt producer and Cobalt prices have come off there
highs in the last few weeks, and that added to the current SP woes.

On the brite side Cobalt is a rare metal and demand will grow as its a key component
in the manufacture of Hybrid and electric car batteries.

As for the half year report...i figure all the downside is factored in...considering the
80% (approx) fall in the share price since Mar/Apr 2007

I'm holding.

 

[tulasi74]

I too thought the report was due 20 August. Imagine my surprise when I saw it out today.

Am also surprised there is no commentary on the report.

I am only a new investor in MRE so have been reading all the posts as part of my research.

Can anyone who has been following the company for a while make some comments on their half year accounts please?

Tulasi

 

[Thrive]

Agree Tulasi, where did that come from?

Visit Minara's home page and it states half year report out 27 August and the E*Trade market calendar states 22 August - whilst a few different dates today was a surprise.

Report was better than I was prepared for, mind you not much emotion in it as far as outlook, and Nickel prices have taken a big hit since 30 June which is probably why I expected it to be worse.

No dividend and expansion of heap leach project put on hold is not a surprise and no doubt supported by shareholders.

$5.24lpUS cost to produce, again better than I had expected - I thought margins would have been tighter.

Report obviously not better than the market had expected with SP largely unchanged.

Minara's focus now appears to be on reducing cost rather than the heap leach project expansion. Maybe a close link between this and the 400 odd laid off previously advised by Jman on the 28 July. Prefer to make a profit on less, than a loss on more - sounds reasonable to me.

AUD still falling and Nickel up just now over 5% on reports of Industrial Metallurgical Holding, based in Moscow considering production cuts. Canceled warrants also back over 2,000t.

Assuming no scary stuff tonight I think we're in for a good day tomorrow - better say why:

Results to sink in.
Nickel up.
Canceled warrants up.
AUD down.

Like Tulasi, I'm also interested to hear thoughts on half year results and why it came out today.

Thrive

 

[So_Cynical]

No dividend

• Minara recorded a net profit after tax for the half year to 30 June 2008 of $50.9 million (2007: $245.9 million).
• The company recorded a gross profit of $82.3 million for the six months to 30 June 2008.
• At 30 June 2008, cash on hand totalled $66.0 million.
• The company remained debt free with a strong balance sheet.
• Minara has experienced a range of cost pressures including escalating prices of inputs such as sulphur and gas, a decline in the nickel price and a very strong Australian dollar.
• the Board has taken a conservative financial management approach and has not declared a dividend for the period.

http://www.minara.com.au/files/docs/163_Half_Yearly_Results.pdf

 

[So_Cynical]

Today Ann...Open Briefing, Minara. MD on Profit & Outlook.

http://www.minara.com.au/files/docs/164_Open_Briefing_-_Minara_MD_on_Profit_and_Outlook.pdf

At current nickel prices, we remain competitive and the focus going forward is to improve our production profile, reduce our costs and deliver a stronger operating margin.

There is enormous potential for profit in MRE @ $1.60, considering the 2007 high of over $9.60.
all things being equal, if nickel prices ever got back to the record high of 2006 then MRE would
also (theoretically) revisit the recent SP highs and represent a profit of over 600%.

 

[Miner]

No dividend

• Minara recorded a net profit after tax for the half year to 30 June 2008 of $50.9 million (2007: $245.9 million).
• The company recorded a gross profit of $82.3 million for the six months to 30 June 2008.
• At 30 June 2008, cash on hand totalled $66.0 million.
• The company remained debt free with a strong balance sheet.
• Minara has experienced a range of cost pressures including escalating prices of inputs such as sulphur and gas, a decline in the nickel price and a very strong Australian dollar.
• the Board has taken a conservative financial management approach and has not declared a dividend for the period.

http://www.minara.com.au/files/docs/163_Half_Yearly_Results.pdf

It is so sarsastically ironic to read the MRE report that Directors are PLEASED to report bla bla for a profit reduced by 80%. Why they were pleased ?

They should cry and shed crocodiles tears like politicians. How dare they to insult the share holders stating the report was their pleasure

Surprisingly the SP went up today. What goes with market who knows

Regards

 

[Chief Wigam]

At least all the bad news is out now. I expect to see sp back over $2 early next week, expecially as AUD continues to tank.

 

[Mr Peaman]

TAKEOVER ON HANDS!!!!

http://uk.reuters.com/article/oilRpt/idUKSYD10935320080810



"--The nickel division of Swiss-based diversified miner Xstrata (XTA.L: Quote, Profile, Research) has flagged more acquisitions in the sector as the price of the metal continues to decline. Xstrata Nickel this year bought West Australian (WA) nickel producer Jubilee Mines for A$3.1 billion. "We've seen some almost distressed situations which represent good value," Xstrata chief financial officer Shaun Usmar said last week. Observers suggested Australian nickel miners on Xstrata's radar may include WA-based Minara Resources (MRE.AX: Quote, Profile, Research). Page 17."


No Brainer at these levels

 

[tulasi74]

The SP action today doesn't smack of takeover speculations. Down 23.5 cents or 15 percent on double the normal volume. I am really hoping this is capitulation by the fearful and the stock might rally tomorrow. No better time than now for someone to make a move.

What might count against Minara is that they are a very high cost producer and their Heap Leach project is yet unproven.

Tulasi