Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Short Term Trade – Cochin Minerals & Rutile

with 29 comments

I could write a 20 page research report or you could help me write a para or two while you make sense of rest of material at leisure yourself. Importantly my analysis will not bias you.

Nearly all industries go through cyclical pattern of under and over investment. In the past ten years rare mineral mining companies scrounged through their existence, barely able to make ends meet. That changed in 2011 where under investment lagged many years behind required demand. Consequence was explosion in price of rare earth minerals such as rutile.

India ranks amongst top four countries including Australia, South Africa, United States for rare earth minerals. Investor are sitting at the edge of their seats to figure if this is a lasting trend.

What I do make out it – both miners, processors and ultimate producers are a very consolidated group. Less than 50 global players in each segment. In India only Indian Rare Earth ltd (http://www.irel.gov.in/) is engaged in mining. Less than five players including Cochin Minerals and Rutile are involved in processing. Ultimate users like Ceramics, Paint, Ink are also a small group like DuPont.

Biggest processing company in world is ILUKA from Australia with 30% market share. Number two player is Cristil Global.

Draw your conclusions from the following links, if you go through all links you would not need anyone’s help, so fish it out brothers:

http://www.iluka.com/docs/mineral-sands-briefing-papers/iluka-pro-rata-entitlement-offer—appendix—mineral-sands-industry-overview.pdf

http://www.iluka.com/docs/asx-releases/iluka-annual-report-2011.pdf

http://ibm.nic.in/ilmeniteandrutile.pdf

http://minerals.usgs.gov/minerals/pubs/commodity/titanium/673303.pdf

TTP enjoyed a monopoly in the market until the KMML was set up in 1985. http://www.flonnet.com/fl2212/stories/20050617002603700.htm

http://www.bloomberg.com/news/2011-11-09/sierra-rutile-to-double-2012-prices-on-pigment-demand-from-china.html

http://www.bloomberg.com/news/2011-11-22/dupont-faces-squeeze-as-titanium-ore-advances-most-since-97-commodities.html

http://www.cristalglobal.com/home.aspx

http://www.icis.com/Articles/2012/01/16/9523409/tio2-producers-are-focusing-on-raw-materials-amid-feedstock.html

http://www.proactiveinvestors.com.au/companies/news/28228/base-resources-250-million-development-of-kwale-heavy-mineral-resource-valued-at-over-100share-28228.html

http://af.reuters.com/article/mozambiqueNews/idAFL5E8FOG2120120425

Disclosure: Invested yesterday and today for trading with expectations of some sustenance into next few quarters knowing that Mining cannot start next month or the month after to cover demand.

Written by amitdipsite

May 8, 2012 at 7:13 am

Posted in Uncategorized

29 Responses

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  1. Hi Amit,

    The scrip looks too cheap at current valuation, probably mkt is thinking that the renewd pricing power will vanish soon.But from all the links above and some more research on internet…this doesn't look true at least for a year.I think we need to keep a track of the Rutile prices continuously (every six months) to get hint of cochin mineral & Rutile profitability.

    Appreaciate your wiliness to look into commodity scrips and looking beyond your favorite consumer stories.

    Regards,
    Vikas

    Vikas

    May 9, 2012 at 2:58 am

  2. Dear Amit & friends,

    In this correction, I am planning to buy-
    1. Windsor Machine
    2. Lanco Infratech
    3. Ansal Properties
    4. Chartered Logistics
    5. Jain Irrigation
    6. NCC Ltd
    7. Cravatex
    8. State Bank of India

    Shall appreciate all advise.

    Deepesh

    May 9, 2012 at 2:57 pm

  3. Hi Amit,

    I went through the P&L account for Photoquip ( 2010 and 2011) and noted the following:

    1. Their employee cost has gone up from 1.86 to 2.30
    2. Administrative expenses have gone up from 3.21 to 4.40
    3. Tax outgo has increased from .07 to 1.26

    and hence the bottom line/eps has not increased. I am pretty sure point 1 is a good news but not sure how to interpret 2 and 3. I will appreciate if you can let me know your views. Thanks a lot.

    vel

    May 10, 2012 at 10:55 am

  4. Amit:
    Mineral sands are a very interesting investment area but we're in the business and wanted to point out that you got a few facts wrong:
    – Rutile is not a rare-earth mineral. Monazite does happen to be found in mineral sands (along with rutile, ilmenite and zircon) and it does contain rare-earths. This is an area we are (medallionresources.com) actively looking at
    – Cristal does not compete with Iluka — Iluka is a mineral sands miner, Cristal processes the titanium minerals (ilmnite and rutile) that come form beach sands to create pigment.
    All the best,
    Don.

    Unknown

    May 11, 2012 at 2:09 am

  5. Don,

    Thanks for correction and good to speak with someone in the know. I practically knew nothing 5 days back about Mineral Sands. I have read up more information since. I was confused why both Iluka and Cristal claim to be #2.

    There are three category of players essentially Miners, Processors and Users.

    Rio Tinto #1 Miner
    Iluke #2 Miner

    Dupont #1 Processor
    Cristal #2 Processor

    The real reason for outperformance of company like Cochin Minerals and Rutile seems to be due to twin forces 1) Output prices of TiO2 and 2) Exclusive secret patent of CSIR researchers given to Cochin Minerals and Rutile and perfected over period of 2-3 years. Mr Garg, current Chairman of Cochin Minerals was chairman/ MD of Indian Rare Earths Ltd the Rio Tinto of India and as far as I know the only company in India that mines rare earths.

    Please read this, how big deal is this for Cochin Minerals ?
    http://www.csir.res.in/external/heads/collaborations/mou/rrlt2.pdf

    http://www.niist.res.in/english/about-us/present-and-future

    If 2) factor is really the driving force, then extra mining that will occur by Base Resources, Iluka etc will not make much of a dent for processors since process technology is the key here, infact raw material will become cheaper. More output is planned by Cristal by Q4 of 2013 (500.000 tonnes)

    In India biggest consumer of TiO2 is Asian Paints the third category. 4 out of 5 Indian companies in Rutile processing are from state of Kerala.

    Kind regards

    Amit

    Amit Arora

    May 11, 2012 at 3:23 am

  6. Hi Amit,
    Good analysis as always….
    According to me, short supply is created from both i.e. miners and processors side…that is why whatever the price hikes taken by the miners were easily passed through by the processors as well. So iluka and rio tinto took 2 price hikes in last 1 year and all of it has been passed to the consumers of TiO2 by the the producers. Processors can increase their capacity quickly than miners. SO we want demand supply mismatch to exists because of miners and not because of processors incase CMRL has assureed raw material supply.
    Now if we see carefully in the P&L of CMRL their raw material cost has not increased at all while revenue increased manifold. This means either they have their own mine or they have inventory available with them.It is essential to know which one is the reality as profitability depends very much on raw material availability.
    Anand

    Bhushan

    May 11, 2012 at 7:20 am

  7. Anand,

    They certainly do not have own mines. A JV with Indian Rare Earth Ltd – IREL(only company with mining right) has been on cold storage in absence of licence. They do want to increase processing capacity but shortage of raw material at this time is deterrent.

    Department of Atomic Energy owns IREL. Only IREL can mine in India due to uranium and thorium content in the material. CMRL buys from IREL but if international prices are suitable they can source. Check this

    http://www.miningweekly.com/article/japanese-company-to-start-rare-earth-production-in-india-2012-03-01

    Thanks

    Amit Arora

    May 11, 2012 at 7:59 am

  8. Amit,
    In that case how come their raw material cost is constant or stable…do they have yearly contract with IREL? or do they have that much inventory i.e worth 9 months of raw material inventory available with them….

    Rgdg,
    Anand
    Anand

    Bhushan

    May 11, 2012 at 8:16 am

  9. Possibly a yearly contract with Miner, Industry norm was for annual contracts but now contracts have been revised to monthly. Not sure about exact nature of contract with CMRL and IREL.

    Another company made a killing http://kmml.com/

    http://www.business-standard.com/india/news/kerala-mineralsmetals-net-profit-at-all-time-high/470112/

    regards

    Amit Arora

    May 11, 2012 at 8:42 am

  10. Hi Amit,

    Saw AK CAP results ?

    Selling Expenditure at 41 Cr's ?
    Did you find any reason for the same ???

    http://www.ejeweller.in

    Jatin

    May 11, 2012 at 9:22 am

  11. amit bhai must say hats of to the research u have done

    zulfiqar

    May 11, 2012 at 11:46 am

  12. From Kishor Barhate
    =============================================

    Dear Amit,
    Below is today's comment from one of the blog…

    http://value-picks.blogspot.in/2012/05/word-of-caution.html

    Cochin Minerals and Rutiles ( CMRL)
    Company posted excellent result in last financial year with an EPS of Rs.73/- and declared a dividend of Rs.12/- (120%) where it mentioned Rs.10/- as a special dividend but not provided the reason for the term’Special’. Normally companies declaring special dividend if it is a one off case like any extra ordinary profit in that particular financial year or something special with the company like its golden/silver jubilee like special situations .Anyway the word ‘Special’ means company is not sure whether it can repeat the same in the subsequent years.Here is an interesting link in the matter of CMRL. It is known that a CBI enquiry is going on against the top officials of Indian Rare Earth (IRE) which is supplying raw material to Cochin Minerals.The allegation is that IRE sold ilmenite to private companies without inviting tenders at a substantial discount to the prevailing market rate which causes huge loss for this public undertaking.

    See the below links taken from some local sources

    http://aicom.saturn.in/news/irel-corruption-cbi-permission-central-govt_299841.html



    =====================================================

    Amit Arora

    May 12, 2012 at 7:00 am

  13. Ilmenite Global Prices in early 2011 was Rs 5000/tonne, 1000 USD. Towards the end of 2011 it was 15,000/tonne. This is raw material for CMRL.

    IREL was selling at price of 12,600 Rs/tonne. or 250$

    http://www.thehindu.com/todays-paper/tp-national/article2655106.ece

    http://www.indmin.com/Article/2967957/Ilmenite-prices-more-than-tripled-in-last-12-monthsKenmare.html

    Looks like raids on officers of IREL are common, happen every year

    http://www.dnaindia.com/india/report_cbi-raids-6-ire-officials_1134562

    Amit Arora

    May 12, 2012 at 7:29 am

  14. sir, if raw material has tripled why has not cost increased?

    zulfiqar

    May 13, 2012 at 4:47 am

  15. Interesting Footwear insights

    http://www.readability.com/articles/bekcsuwr

    Adidas India Debt/Equity Ratio: 2.8
    Adidas India 2010 Revenues: 455 Crores
    Adidas India 2010 PAT: 9 Crores

    Reebok India Debt/Equity Ratio: 4
    Reebok India 2010 Revenues: 786 Crores
    Reebok India 2010 PAT: LOSS -40 Crores

    Amit Arora

    May 13, 2012 at 7:22 am

  16. DCW is also in to synthetic rutile, any view

    sidhartha

    May 15, 2012 at 4:57 pm

  17. Correction here, Prices in beginning of 2011 were 110 USD/Tonne, towards end 300USD/Tonne whereas IREL was selling CMRL at 250USD/Tonne.

    Amit Arora

    May 18, 2012 at 6:53 am

  18. Thanks Jatin

    http://www.scribd.com/doc/93884685/Cravatex-Result-Updated

    Nothing you don't know I guess

    Amit Arora

    May 18, 2012 at 6:55 am

  19. Credit goes to you, Amit..They copied your's 2 stocks..Crava n Cochin..

    Rahul Paliwal

    May 27, 2012 at 8:49 am

  20. My dear Rahul, I am not the inventor of technology and copying stock ideas from other is perfectly fine, what is inane and incompetent is copying words like “secret patent of CSIR”

    Enjoy

    Amit Arora

    May 28, 2012 at 12:20 am

  21. Hi Amit,
    Any idea why the sudden and drastic fall in Cochin Minerals.Roughly 35% fall in last 2-3 sessions, and almost 50% from last highs of ~330.
    Any news brewing in this stock or is just to shake the weak hands?
    I missed out on yr trading call when you posted it, but now the price has seriously come down way below yr posting price. So considering a tukka bet.

    whatay

    July 18, 2012 at 5:38 am

  22. what has happened to Cochin minerals inthe last 2 days

    armind40

    July 18, 2012 at 6:00 am

  23. Whats gone wrong with CMRL…its down 52% in a month? is it a fraud? if not, then is it a good price to buy?

  24. I wrote here on the 24th of May:

    http://multibaggersindia.blogspot.co.nz/2012/05/investor-is-king.html

    “I'm selling out Cochin Minerals at small profit – no intention to continue research on it, too many variables.”

    That is what one gets in commodity stocks. There is news of global over supply.

    http://www.theaustralian.com.au/business/mining-energy/iluka-shares-tumble-as-demand-falls-for-zircon-rutile/story-e6frg9df-1226421522682

    Amit Arora

    July 21, 2012 at 8:27 am

  25. Hi Amit

    have you reviewed the latest results of cravatex

    Regards

    Sridhar

    August 16, 2012 at 5:21 am

  26. Ministry seems to be keen on increasing output of ilmenite which should ease RM pressure for CMRL…also in its bid to increase production the backward integration project with KMML might see light of the day in coming years…here is the link to the ministry report http://ibm.gov.in/IMYB%202011_Illmenite%20&%20Rutile.pdf

    Growth & Value Investor

    October 26, 2012 at 6:20 am


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