M&R board highlights mining growth hopes

The independent board of Murray & Roberts (M&R) is evidently keen to ensure investors are constantly aware of the group’s potential growth prospects, particularly its growth prospects in mining.

It’s probably not a bad idea given all the grim stuff that is happening to its former peers in the construction industry. Of course, M&R is no longer in that industry, it is in “mining-related activities” and oil and gas.

According to BDO Corporate Finance, which provided an independent valuation for the independent board appointed to consider the R17-a-share offer from Aton, the fair value price range for control of the group is R20 to R22 a share.

To be expected, M&R executives, who have a lot of share options that could kick in if there is a change of control, are backing the more bullish estimate.

And they reckon the improved prospects for mining help to justify it.

Thursday’s announcement about R4bn worth of new projects in Australasia and Mongolia will remind investors that it is not all doom and gloom. This in turn might encourage the few undecided shareholders to hold on to their shares in the hope of an improved offer from Aton.

The Mongolian copper mining business looks particularly exciting given the boom in copper mining in that country. Until 2010 copper was Mongolia’s largest export; after a slump it’s on a comeback helped by the depletion of deposits in Chile and the metal’s use in electric cars and renewable energy.

Rio Tinto and the Mongolian state are the big players in the industry. But by all accounts, operating in this new democracy can make SA seem stable.

With SA’s stagnant economy threatening to bury prospects for many residential property developers, it’s heartening to see Calgro M3 finding traction in its graveyard shift.

This week Calgro announced the expansion of its fledgling memorial parks business to the Western Cape and the Free State, bringing the number of sites owned and managed by the group to five. There are plans to keep expanding this hallowed niche into Kwa-Zulu-Natal, the Eastern Cape and Tshwane.

At this early juncture, the memorial parks business accounts for about 5% of Calgro’s after-tax profits. But this could grow markedly in the years ahead with a project pipeline of R2.2bn and a lofty targeted return on equity of more than 30%.

The company has indicated that with 921 graves sold in the last financial year and sales steadily increasing, the memorial parks segment could chip in about 10% of overall profits in the next financial year.

Not surprisingly, Calgro is hoping to capitalise further on its “death niche” with plans to develop insurance-related products for the memorial parks business by partnering with insurance specialists. Funeral insurance is a vibrant business in SA, with estimates the industry is worth more than R7bn.

A further diversification in income streams will probably be welcomed by Calgro shareholders. On the other hand, more cynical investors might raise a red flag, arguing that a more intensive focus on its core property development operations should be front of mind in these tremulous times.