Now cricket boss Giles goes in to bat for SA mining firm
GILES Clarke is a controversial figure in the cricketing world. Now president of the England and Wales Cricket Board, he was roundly criticised during his eight years as chairman of this national governing body. Whatever the views of cricket enthusiasts, however, few would dispute his ability to make money, for himself and others.
He founded Majestic Wine in 1981 and sold it for £15million eight years later. He then set up Pet City and sold it for £150million in 1996 and went on to set up Safestore, which he sold for £40million in 2003.
Now, investors are hoping Clarke will deliver similar riches at Iron
veld, a South African mining business, which he chairs.
The shares are a lowly 4.375p, but should appreciate substantially over the next two to three years, as the company secures the necessary funding and moves towards commercial production.
As with any small mining stock that is not yet profitable and which needs to find cash, the road ahead may be bumpy, so these shares are not for the risk-averse. But for those looking for adventure and the possibility of rich pickings at the end of it, Ironveld has attractions.
Despite the name, the company does not intend to produce iron ore, which is prone to wild gyrations in price and today fetches about $60 (£42) a ton. Instead, Ironveld intends to produce high purity iron powder, which commands about $1,000 a ton. The price has stayed around that level for several years.
Made by smelting the original ore into a fine talcum powder-like consistency, high purity iron is both flexible and lightweight, and is used primarily in car gearboxes as well as airbag valves.
Ironveld’s iron ore is particularly well suited to this treatment. The company is hoping to move into production next year, and aims to produce 42,000 tons a year by 2018.
BASED in an ore-rich geological outcrop known as the Bushveld Complex in South Africa’s Limpopo province, Ironveld’s assets include vanadium and titanium too. Vanadium is used to harden steel and is a key component in battery storage for power grids. Titanium is an exceptionally strong metal used in products ranging from aircraft to dental implants.
Clarke is a no nonsense fellow with a resolute focus on the bottom line. Based on current prices of high purity iron, vanadium and titanium, he expects Ironveld to achieve sales of $36million and profits of $18million next year, rising to $49 million and $27million respectively in 2018. (His targets are in dollars, as metals are traded in the US currency.)
In other words, this could soon become a highly profitable business. However, iron ore only turns into high purity iron when it is smelted and Ironveld needs to finance and build a $60million smelter before production can begin.
Clarke is, perhaps unsurprisingly, optimistic. First, in compliance with Black Economic Empowerment legislation, 26 per cent of the Ironveld smelting subsidiary is under the ownership of ethnic groups previously disadvantaged under Apartheid in South Africa. That means just over a quarter of the smelter will be funded by Ironveld’s empowerment partners and this money is expected to come from the state-backed
Industrial Develop- ment Corporation, as government interest in the project is high.
Ironveld operates in an area of extreme unemployment and the company expects to create more than 3,000 jobs. The group is already involved in several social endeavours, including dairy farming and projects to keep children in school.
Clarke also works closely with empowerment partners Zolani Mtshotshisa and Pinky Ngxulelo, who are both well-connected in South Africa. The management team on the ground are all born and bred in the country and chief executive Peter Cox has been in the mining industry for 40 years. They have been careful to play exactly by the book, acquiring permits diligently, and meeting and surpassing their corporate social obligations. This has all helped to attract interest in the smelter from local banks.
Clarke may also be drawing on his wide network of contacts to put up some of the cash and more will be revealed over the next two to three months. Assuming sufficient funds are found, Ironveld will almost certainly be asking shareholders for a contribution, so a share placing within the next few months is a racing certainty. Clarke will be looking to keep this to a minimum and, over the longer term, the company has strong prospects.
Demand for high purity iron is increasing as car makers try to make their vehicles as light as possible. Vanadium and titanium play crucial roles in growing industries. Ironveld also benefits from access to water, electricity and decent roads, none of which can be taken for granted in the African mining industry.
Importantly too, the group’s costs are in rand and its sales will be in dollars, with customers already lining up to sign agreements once production starts.
Midas verdict: Pre-production mining firms are always risky and Ironveld is no exception. But the group has navigated national legislation and international markets well so far and Clarke’s presence in the chair is reassuring. A change of name might help to dissociate the company from iron ore. Meanwhile, this is a punt for intrepid investors.