Motley Fool Australia

2 junior miners worth watching this week

While the resources sector is traditionally pretty dynamic, the latest fall in the iron ore price has really got some companies hopping.

Junior miner Western Desert Resources Ltd (ASX: WDR) entered voluntary administration last week after falling iron prices made its mines unprofitable.

While other junior miners are no doubt feeling the heat as prices move ever closer to their break-even point, Rio Tinto Limited (ASX: RIO) and BHP Billiton Ltd (ASX: BHP) are still sitting pretty thanks to super low-cost resources in the first instance and healthy diversification in the second.

Steel maker Arrium Ltd (ASX: ARI) is the latest company to be affected, today announcing a major share issue to shore up its balance sheet.

In another part of the resources world, MetroCoal Ltd (ASX: MTE) looks set to go ahead with its acquisition of Cape Alumina Ltd (ASX: CBX) after the board of that company approved the takeover offer this morning.

Arrium Ltd

Arrium announced a 1-for-1 renounceable entitlement offer at $0.48c per share, hoping to raise $656 million from retail shareholders and at least $98 million from an institutional placement to its underwriters.

At a 26% discount to its current price, the share offer might look appealing but I would counsel shareholders to take the time to think before subscribing.

Although it is a sound strategic move by the company, investors should remember that it is has been undertaken because action now reduces the risk of bigger problems later should prices and demand fall further.

Further I believe that the rights issue may seriously dilute earnings and reduce shareholder value if shares at large drop to the issue price.

Despite the ‘theoretical ex-rights price’ value of 56.5 cents a share, the risk of shares dropping to their issue price and staying there is very real – the same thing happened to mining services company Ausenco Limited (ASX: AAX) not so long ago.

While I wouldn’t give an outright ‘No’ recommendation to the offer, investors should consider very carefully whether it is the right financial move for them.

Cape Alumina LtdMetrocoal picture

In an announcement looking something like the intro story for a Star Wars movie, Cape Alumina’s board today recommend
ed that investors accept MetroCoal’s off-market takeover bid for the company.

With a 19.85 million tonne Direct Shipping Ore resource on the tip of Cape York, Cape Alumina is well positioned to benefit from high bauxite prices and may even enjoy advantages in shipping costs – though setup costs are likely to be high – over competitors like Australian Bauxite Ltd (ASX: ABX).

As I have discussed previously I think the merger is great news for investors and looks to be the best way to successfully develop the Cape York bauxite deposits.

While we’d all love to find and buy the next ‘Hot Stock’ before it becomes hot, finding such a rare gem is quite the challenge.

In my link above I list three possible candidates for the position, and these are joined by The Motley Fool‘s free report on its three best speculative resource stocks – actually technically there’s only two, since one has already been snapped up by an excited market.

If you’re interested in receiving this special report, simply click on the link below and enter your email address – it takes less than 30 seconds – and we’ll send it to you, completely FREE!

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Sean O'Neill owns shares in Rio Tinto, Ausenco, and Australian Bauxite.

Related Articles...