Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Valuation of Mining Companies | OMDC

with 2 comments

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:

http://www.iii.co.uk/articles/articledisplay.jsp?article_id=2133733&special_id=2071252

http://www.e-cbd.com/113627.php

Here is a link of cost of mine sold in Orissa, though this mine can have superior or inferior quality of ore.

http://www.clickindia.com/detail.php?id=5383012

12 million tonnes ore = 60 crores

So, 200 million tonnes ore with OMDC = 900 crores only

Another example of iron ore mine sale is

http://dealcurry.com/20100323-Southern-Ispat-Acquiring-New-Tech-Forge-For-Rs-95-Cr.htm

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.

Written by amitdipsite

September 12, 2010 at 12:55 am

Posted in Uncategorized

2 Responses

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  1. Hi Amit,

    Good analysis….

    Regards,
    Vikas

    Vikas

    September 12, 2010 at 12:19 pm

  2. Hey Vikas,

    Let this not deter you from doing your own analysis. For eg: everybody's value and price martix is different. I consider Vimal Oil still rubbish until it pays of loan, but it is rising and can keep rising. CRISIL de rated it and promoters will have to do huge equity dilution, which is big negative, despite that it can keep going up more…I'm happy to miss opportunities like that..

    I must add that in OMDC downside is limited which is a plus. It can be a multibagger but my conviction is less…and dont want to bet on “scarcity value” of shares.

    Regards

    Amit

    Multibagger

    September 12, 2010 at 8:47 pm


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