35 replies to this topic

[Crow8866]

Now this is an article.Independence: Yes, I own CMO shares

Chrometco was the first mineral exploration company to list on the AltX on 12 August 2005 when it raised only R5million of the R22million that it intended to raise. Despite this CMO proceeded to list and the market watched the company's share slide from a brief high of around 125c near its listing date to a low of 33c that was reached about this time last year (November 2006).

Chrometco takes its name from the virgin mineral deposit, Rooderand, that the company was formed. This deposit–that was originally acquired for a sum of around R2million in early 2004–was recently disposed of to a private company for a total of R60million cash. More will be said about this deal later on.

Despite its name Chrometco is actually a diversified minerals exploration company. I do get the feeling that this was not entirely the intention when the company listed, but it appears to have organically grown towards a general view of mineral exploration and my communications with Stuart Simons, the CEO of CMO, have revealed how they have been/are looking into range of potential project in a range African countries and in a range of commodities. One of these potential acquisitions has the company under cautionary, is located in South Africa and appears to relate to a combination of commodities.

In a way this diversification does lower the risk associated with the exploration status of the company, but it also lowers the company's focus that could lead to "di-worse-ification" and spread managements' targets too wide.

Moving on from its unsuccessful capital raising prior to listing Chrometco–with the help of the River Group–managed to raise R24million via an equity issue at 63c a share to institutions that include Sanlam and Cadiz. I believe that it has been this institutional support that has led to the general interest in the company and its recent share price highs of above 110c. The fact that this institutions are willing to be associated with the exploration company implies that they feel this reputational risk is justified.

If not now then at least at this point in time the institutions saw sufficient value in CMO to justify the risk associated with investing funds into it…something worth thinking about.

As CMO is a mineral exploration company this value must arise from its underlying asset base and project line-up. Thus, a look at the deals and potential projects surrounding CMO is very important.

The biggest to date and most profitable has been the sale (though it still appears to be conditional upon updating the 'old order' mining license to a 'new order' one) of Rooderand for a capital gain of around R58miilion. This chrome ore is a good example of the deal-seeking nature of CMO whereby it acquired the asset, furthered exploration and drilling (thus absorbing a certain amount of the project risk associated with it), and sold it at a significant profit.

Going further a field (and now that CMO has established a strong capital/cash base from which it can gear itself for more sizable projects) Chrometco has been in talks over various projects in the DRC. The minerals involved in these talks include gold, copper, cobalt, and nickel and–in the words of Stuart Simons–"…the values run into billions of US$ at today's prices…".

Although the directors felt that these deals would come to head sooner they have been put on ice for the moment due to the uncertainty surrounding the DRC mineral license clean outs that the country's government are doing. On this matter John Francey, the CFO of CMO, says:

"Many companies and individuals have previously applied for mineral concessions in the DRC with the intention of prospecting on these properties, and subsequently intending to either on-sell them or develop them for production. In many instances these applicants have not fulfilled their intentions, nor have they paid their annual renewal fees for these licences. It is the DRC Governments intention to invalidate these type of mineral holders, and revoke their licences completely, but still giving them the right to re-apply for these concessions but with new criteria being applicable. This message is not nearly as severe as that which has been reported in the media, however, Chrometco itself has suspended it’s exploratory investigations into numerous opportunities for the mean time, mostly because of the forthcoming five month rainy period which lies ahead. Hopefully, after the rainy season, by this time the Ministry will have concluded it’s clean-out, and that in future junior miners holding valid mineral rights can then proceed with their businesses with confidence."

Moving closer to home Chrometco recently released a Cautionary Announcement detailing how it has "…commenced discussions on a mining project in South Africa…". On this note Stuart says how the project is "…not for a single commodity."

Beyond this I know that Chrometco is looking at deals in other countries ranging from Zambia to Tanzania.

From this CMO appears to be a deal-making company centring around its managements'' skills at identifying assets and opportunities. On this note it is encouraging that John Raudenheimer joined the company as Chairman. He was formerly the CEO of Samancor Manganese, a subsidiary of BHP Billiton, and–besides his career's vote of confidence in the company–he brings a world of experience to the CMO. More so than in most other companies, investing in an exploration/high-risk company is actually investing the decision-making powers of the management and John's place as Chairman–in my eyes–adds value to its shareholders.

With this background on Chrometco I am going to take a large leap forward with a NAV-based valuation of the company. This is a very rough approach and is based on numerous assumptions due to the lack of other information. Thus it should be used more as a "guide" than a valuation and adjusted for any new news/project updates coming out of the company.

Summary of my calculations are:



Cents per Share
Conservative Aggressive
NAV View 59.00 82.60
Cashflow View 32.49 84.28



Based on this "rough" valuation I have found a fair value range that I feel fairly comfortable saying that Chrometco is worth given its risks. This, though, is very dependent and levered on future news and advancements.

Its present trading range of 40c to 50c is below the bottom of this range and, indeed, appears to be below the range of intrinsic values of 59c to 83c. Thus, based on this value I feel that CMO does offer an aspect of value play of present.

So little information has been released concerning projects, thus all estimates are significantly limited to the information available. Despite this and using industry leaders' standard of project returns I have come up with a rough cashflow/earnings range for CMO that assumes a range of years before cash/profits are being generated. This range's terminal value is around 84c, but could drop to zero if the directors take too generate returns (due to the time value of money).

Overall, Chrometco is an exceptionally challenging company to value partly due to the vast changes that have taken place over the last 12 months and partly due to the prospective nature of its potential deals. Without any hard information CMO is more speculative than most shares I look at…but due to the significant asymmetry of information (or lack thereof) it could well be very undervalued by a risk-averse market.

Although I have decided to recommend CMO as a www.SmallCaps.co.za speculative buy, I have also decided to qualify this recommendation from a couple of angles:

Firstly, I would follow proper diversification rules (5% – 10%) with any investment in CMO. It may well add alpha to your portfolio, but it does also bring significant volatility along with it.

Secondly, I would follow CMO's project/deal updates closely and re-evaluate the worth of the company with each new news item. If directors cannot manage to deliver value to their shareholders within a reasonable timeframe then there is little chance that they ever will…but on the other hand they may well surprise; the institutions appear to have a certain amount of faith in their ability.

Finally, I would ignore day-to-day movements. Rather focus on the intrinsic value that you have settled on for the share (and updated with any new news items). Resource stocks are always volatile and exploration companies even more so.

So, in conclusion, I have satisfied myself that despite CMO significant risks it does offer a potentially rewarding investment into a management team that are looking at numerous deals in a range of commodity projects. The share also appears to be trading below intrinsic value and may well offer significant upward potential if the company is properly geared and its funds are sunk into a worthwhile project with strong cashflows.

Kind regards,

Keith McLachlan

[Crow8866]

That's exactly why you are Magnet and I am Crow.

 

We think different and make different calculations. 

[Magnet]

With IFM in business rescue and chrome prices still low its hard to see any positive cash flow out of this?  

 

 

Tax expense of 4 million will be out this year. Make the calculations

 

See attached screen prints.  

[Crow8866]

Tax expense of 4 million will be out this year. Make the calculations

 

See attached screen prints.  

Attached Files

•  Untitled.png   537.79KB   9 downloads
•  Untitled1.png   408.36KB   9 downloads

[Crow8866]

Come 27 November 2015, come 1.00+ 

 

 

[Crow8866]

0.12  - Give away at current prices. I have a feeling this one is really going to be a winner next month.

 

Lets hold thumbs. Already have 600000 shares and planning to hold for a long time.

 

Remember the cost they had to pay last time was a once off thing and will not affect the books this time round and that's what I hope will be the game changer.

 

 

 

 

[Shi]

OUCH !!!

 

http://www.sharenet....27152000&seq=34

 

 

Shareholders attention is drawn to the announcement made by
International Ferro Metals Limited (“IFM”) that IFM has been
placed into business rescue on 26 August 2015.

 

[Queen B]

results out on SENS

Everyone too stunned to trade  

No movement in share price since SENS

[Goliath]

Looks like 50c coming with this momentum by the end of the week. Earnings next week probably going to be excellent by the way its trading

 

Guess he sold all his shares when it jumped!

[Shi]

Given what has happened the last 6 months or so, it is not hard to believe that claim. Given these activities, it would be interesting to see where the losses comes from - the results will be out tomorrow (last day to report and they have done so previously).

[PickApprentice]

CMO: Chrometco...They have earnings out next week which will show they've gone from non-productive exploration to full scale mining of PGM Ore. Trading statement should be out this week. The share has bounced from 10c to 25c in 2 days on big volume! Someone obviously knows something and maybe this could be the next CZA?

 

Hmmmm, glad that I was not in on this one. 

[Queen B]

Cheap martinis also on sale at CMO head office. Many people drowning their sorrows

 

Im sure 10bgusc has better tasting martinis since his initial punt. But he obviously doesn't have signal in the Bahamas where he is tanning

 

10bgusc dude, don't start a thread and then disappear

 

Insider trading, pump and dump, it all starts ringing alarm bells

[Queen B]

Lol . Well played. I hope that martini is delicious

[Mr.Balls]

Because he is sitting on a beach somewhere with a martini...

[Queen B]

and 10gbusc has gone very quiet

[Queen B]

and 10gbusc has gone very quiet

[Mr.Balls]

Shareholders are hereby advised that:

  -   the basic loss per share for the financial year ended 28
      February 2015 will be between 8.16 cents and 8.24 cents, or
      between 1 854% and 1 874% lower than the 0.44 cents basis
      earnings per share reported for the year ended 28 February
      2014; and

  -   the headline loss per share for the financial year ended 28
      February 2015 will be between 8.16 cents and 8.24 cents, or
      between 2 040% and 2 060% lower than the 0.4 cents headline
      earnings per share reported for the year ended 28 February
      2014.
 

 

OUCH....

[Queen B]

Just as we thought!

Pump and dump!

Shocking SENS

[Queen B]

Good point Mr Balls

Money blown in casino and free drinks is a far better prospect right now. Especially if I hit the Royal Flush

If results are good, I'm in like Flynn

And PS: My nickname Queen B comes from the poker tables. I always win with Queens. Hence the nickname

[Mr.Balls]

Haha tanks

 

Everyone wants to make a quick buck, even I considered to buy, just cancelled my order now, but I have to stick to my rules, and one of them is not to gamble, I can rather go to Grand West for that.

 

I'll rather wait for the results, look at it and if it looks like there is a opportunity I'll invest,

 

I'm looking at chrome atm, should be a forerunner for platinum, so if chrome goes in a bull phase, will be good for CMO, also MRF, MRF far bigger and could also offer good prospects,

 

Lets wait for the CMO results to see