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Shares up 26% after Mineriver found to have estimated resources of more than US$500b
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Shares up 26% after Mineriver found to have estimated resources of more than US$500b
Andrea Soh, Business Times
15 January 2014
Shares in Chinese shipbuilder JES International soared 26 per cent yesterday to close at 18 cents, after a Xinjiang mining exploration firm that JES is investing in was estimated to have 4.2 billion tonnes in resources, equivalent to a value of more than US$500 billion.
This is far higher than the S$60 billion condition that had been laid out in the earlier agreement between both firms.
In a bid to diversify its earnings stream from the beleaguered shipping sector, JES had announced in November that it was investing $127 million - or 89 per cent of its market value then - to buy up to 30 per cent of Mineriver.
Singapore-incorporated Mineriver owns Xinjiang Feng Li De Yuan Trading Co Ltd, which holds the mineral exploration rights for a 21.5km square area in Tuoli District, Tacheng city in northern Xinjiang.
Part of the investment agreement, which was divided into three tranches, had been based on the condition that the magnesium and nickel assets of Mineriver would be worth at least S$60 billion.
Since then, an independent report by SRK Consulting China, which drilled 149 holes in an area of 5km square, has put the amount of measured and indicated mineral resources of the firm at 4.2 billion tonnes, based on a magnesium oxide cut-off grade of 30 per cent.
Its mineral resources include magnesium oxide (41.9 per cent), silicon dioxide (35.8 per cent), iron (III) oxide (6.8 per cent) and nickel (0.22 per cent).
“We like the resources of this mine, which is magnesium,” said JES chief financial officer Patrick Kan at a press briefing yesterday. “We realised that the application is very vast, and (the metal) is still at an early stage of commercial development.”
With the metal’s lightweight properties, being two-thirds as heavy as aluminium and one-quarter the weight of steel, many are expecting that magnesium will replace aluminium in the automobile and aviation industries, especially with increasing demand for transport with a reduced carbon footprint. Magnesium is also used in the pharmaceuticals, cosmetics, fertiliser and refractories industries, among others.
The metal has been used for commercial purposes for only 40 years, compared to 150 years for aluminium and 3,000 years for copper.
Mineriver intends to apply for mining rights of the area through its Chinese subsidiary. Meanwhile, it is looking at securing more funding.
“Getting mining rights is always in line with funding strategy, because we don’t want to get the mining rights and squat there for too long without getting construction of the plant,” said Mineriver chief executive Ong Sing Ming.
Part of the funding will come from the investment agreement with JES. The firm is also considering an initial public offering.
“We believe that we’re in the pre-production stage now. There’s not a question mark anymore,” said Mr Ong. “Maybe within the next one year we hope to get ourselves listed on a reputable stock exchange in the world.”
Mineriver intends to develop the mine through a three-pronged approach: setting up its own facilities for producing magnesium-rich serpentine fertiliser and flux, which is used in steel making; working with multinational firms through joint ventures; and conducting research and development on new applications for magnesium.
JES International said it will not be involved in the management of Mineriver, and remains focused on its core shipping business.
Local banks in China have been reducing support for the shipbuilding industry, which has also affected JES. But there are signs of a turning point, said Mr Kan. “We also see enquiries about shipbuilding.”
JES will focus on building a few specific models to increase economies of scale. At the same time, offshore marine vessels, which the firm diversified into in late 2012, remains the segment that is profitable. “We see very good demand there,” he said.