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Investing

MMI Quick Look

MMI are a bauxite (aluminium) miner on the ASX. They are a bit of a minnow with a Market Capitalization of $79.17m at the time of writing.

I’m quite a novice when it comes to mining stocks, but this one peaked my interest a year or so ago as it seemed underpriced and picking up steam in the business and share price.

Mining stock are complicated because there’s a lot of guesswork and I find their company reports and presentations tend not to give enough information about the industry or business to really know what’s going on. Additionally, there’s a lot of industry jargon to know, and some degree of a gamble as to what they will actually be able to pull out the ground. There are also all the usual business risks on top of this. Finally, there seems to be a fair bit of investor risk, as presentations are designed to lure investors in to get investment. This could mean that a rosier picture is painted, compared to reality. Lastly, I’ve read that there are a lot of scams out there in which directors set up mining ventures with the view to mining a salary from investor funds, and taking a carefree approach as to whether they strike ore / profitability.

Given the above, please take my quick look into MMI with a large grain of salt. Additionally, I’m just sharing the 10 minutes of research I’ve done today. This is not a full, proper analysis of the stock.

Back To MMI…

A quick glance at the recent financials suggests that they have about $28m in cash (probably came from a big loan – flag that for investigation if I do a full analysis at any time), with a loss of $5.534m for the first 6 months of this year (vs. ~$9m last year).

Upon further investigation, it seems that the loss was offset by opting into the Queensland Financial Provisioning Scheme, which is a government scheme which relates to rehabilitating land that has suffered damage from mining operations. It is unclear to me whether this was an inflow or outflow of cash. I’m not going to bother looking into this further, but just wanted to flag it.

It seems that the company is having a number of issues:

  • Unfavourable exchange rate (RMB:USD & USD:AUD) is negatively affecting profits, going forward.
  • The price per WMT (Wet Metric Ton – AKA unprocessed ore) bauxite dropped 8% to $52.
  • Demand seems to have dropped based on the amount mined vs shipped. I suspect that this might be due to Coronavirus or perhaps the relationship between China and Australia following the treatment of Chinese people living in Australia by the locals.

So based on this, I think that’s why the share price has dropped. Anyone looking at capitalising on the lower share price might want to investigate the finances a bit more to see how the debt is looking, what sort of amortisation costs might be looming, what the effect of the Queensland Financial Provisioning Scheme will have, how long they can operate at the current run rate before raising funds, and what it would take to make them profitable.

I currently have some other investment opportunities in my sights, so I’m keeping my powder dry for now. Also, I feel cautious about investing in mining companies because there’s a lot I don’t know about them and there would be a massive amount of research for me to get myself in a position where I was able to confidently invest. Therefore I won’t be doing any more investigation into MMI at this stage, though my gut tells me that those who do, could stand to do well if conditions for this company improve.

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ASX

Metro Mining Limited (ASX:MMI)

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