International Ferro Metals began a very strong run almost as soon as we bought it, pushing through our pre-set target price within weeks. The valuation no longer stacks up and, in addition, management have embarked on a share issuance - despite earlier assurances that no rights issues would take place. Taken together, these factors now make it a sell.
International Ferro Metals. After several years of mine development, building a mill and buying concessions, the company had suffered, as is normal with a start-up, significant losses. Last quarter it moved into a substantial cash flow surplus which should accelerate into 2008, the proof being that some tax will be payable then for the first time. Their sole product is ferro-chrome, mined under contract in South Africa. Break-even is less than 55 cents per lb. vs. a spot price of about 85 cents. Assuming the 'bear case' of a weak steel market, demand for ferro-chrome for use in stainless steel is likely to continue rising, whilst supplies are tight. Having a major Chinese steel company as a 25%+ shareholder also adds stability, plus a speculative element as to its longer-term corporate future.
| Sedol |
Type |
Price |
Date |
| B0CMWS5 |
Sell |
£ 1.49 |
23/07/2007 |
| B0CMWS5 |
Buy |
£ 0.93 |
31/05/2007 |
|
