Valuation of Mining Companies | OMDC
I spent just 15 minutes googling, binging and came to conclusion that OMDC does not deserve a thumping buy at 2000 Crore market cap. However it has underlying value approximately 2000 crores only thus has limited downside. If demand in China collapses then all commodity companies will suffer.
Following are good links on valuation exercize of mines:
Here is a link of cost of mine sold in Orissa, though this mine can have superior or inferior quality of ore.
12 million tonnes ore = 60 crores
So, 200 million tonnes ore with OMDC = 900 crores only
Another example of iron ore mine sale is
Key statement is “It is also in the process of buying iron ore mines in MP, with estimated reserves of 250 mn tones for about Rs 50 Cr.” This values OMDC iron ore reserves at just 50 crores.
Please note, I have not valued manganese reserves etc. as I like to take a broadbased call on such stock with atleast 70% discount. Whilst they do have 800 crores cash in hand, consistent growth is an issue.
My style is to buy companies that will perform soon and reward within next 12 months. However in a likely scenario of systematic risk, a macro event like China bubble collapse, one should buy companies with reasonable certainty of recovery in 2nd or 3rd year. There too, OMDC loses out.
While the downside is limited for OMDC, I do not feel one can commit any siginificant position in portfolio to it. Value investors can buy some but I wont add it at all. I like to invest in only no-brainers however in frequent their find, at this juncture predicting growth is difficult and its not a no-brainer.