The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (Soul Patts) share price is in focus as the investment conglomerate has decided not to go ahead with listing its Round Oak Metals business.
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Cancelled IPO
It was only last week that Soul Patts sent out a letter ahead of its 2021 annual general meeting, inviting shareholders to consider whether they might be interested in an initial public offering (IPO) and subscribing for shares. The plan had been that the prospectus would be lodged with ASIC this week.
Soul Patts thanked shareholders who had registered their interest in participating in the proposed Round Oak offering.
The investment conglomerate said that it has decided not to go ahead with the IPO process at this time for two reasons.
First, it referred to the "current market conditions for IPOs".
The other reason it noted was encouraging exploration results at Round Oak's Jaguar operations in Western Australian that have the potential to materially extend the mine's life.
Round Oak's Jaguar operations is an operating underground zinc and copper mine located within the Eastern Goldfields of Western Australia, 60km north of Leonora and 250km north of Kalgoorlie.
Under Round Oak's current description of Jaguar it says that it has a "current mine life of four years, with significant potential for the operational life to be extended through exploration campaigns".
Round Oak trading update
Sometimes updates can have an impact on the Soul Patts share price.
Soul Patts gave investors a brief trading update about how Round Oak is going.
It said the mining business continues to perform well with strong operations and favourable copper and zinc prices. Management believes that extending the life of the mine at Jaguar and progressing the Stockman project in Victoria will add material value for Soul Patts shareholders.
How important is Round Oak to Soul Patts?
In FY21, Soul Patts reported that it achieved group regular net profit after tax (NPAT) of $328 million (up 93%) and group statutory NPAT of $273 million, down 71%.
Those profit numbers are generated from the dividends, distribution, and profit that Soul Patts has exposure to with its portfolio. There are various names that provide large contributions such as TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), and New Hope Corporation Limited (ASX: NHC).
The regular profit increase was predominately due to three reasons.
Soul Patts noted the growth in building products and land revaluations increasing Brickworks' contribution by 95%.
There was a strong recovery in coal prices, increasing New Hope's profit contribution by 45% year on year.
Finally, Soul Patts pointed to a significant improvement at Round Oak, with an increase of $103 million.
For Round Oak Metals, Soul Patts believes there are structural tailwinds in supply and demand, which is expected to support strong copper prices with "robust" construction demand led by China, a transition to renewable energy sources, and the increasing electric vehicle uptake.
Is the Soul Patts share price a buy?
Whilst Morgans still rates it as a hold, the price target is $36.78.
Soul Patts shares have fallen by more than 10% over the last month and more than 20% since 28 September 2021.
