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| 08 December 2007 |
| By: Charisse G. Nierra |
| Company description |
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Oriental Peninsula Resources Group, Inc. (OPRG) was incorporated 16 April 2007 as a holding firm to consolidate and operate companies that own mining tenements located in the Philippines. OPRG has 94% equity in Citinickel Mines and Development Corporation (CMDC), which owns 2 nickel ore mining projects in Sofronio Espaņola and Narra, Palawan.
CMDC was formed 05 June 2006 with the intention of engaging in exploration, development, and mining of nickel and other associated minerals. CMDC is currently collaborating with internationally-reputable affiliates in pursuing extraction of ore reserves and sustainable development of mineral resources within Palawan's ophiolite zone. CMDC is the sole owner of Pulot and Toronto Mines and all interests therein.
Citimax Group, Inc. (CGI), owns 41.66% in OPRG, was initially engaged solely in the supply of heavy horizontal equipment and generators. CGI eventually diversified into construction and mining through subsidiaries, Rockworks Resources Corporation (RRC) and Hardrock Aggregates, Inc. (HAI). Presently, CGI has 4 mining projects, namely: Toronto and Pulot Nickel Mining in Palawan; Basalt Mining in Antipolo; and Silica Mining in Roxas, Palawan. RRC was incorporated 25 April 2003 to address the aggregate requirements of San Roque Dam, which was constructed by Raytheon-Ebasco Overseas Ltd. HAI is currently engaged in quarrying in Barangay Cupang, Antipolo City.
Both Pulot Mine and Toronto Mine are covered by an approved Mineral Production Sharing Agreement (MPSA) which became effective 03 January 2007. In the MPSA, Citinickel was given exclusive right to conduct and develop mining operations within the Mineral Property for 25 years commencing from its date of effectivity. The MPSA covers a contract area of 2,176ha., 1,408ha. of which covers Pulot and 768ha. Toronto Mine.
CMDC currently has an ECC to mine 40ha. small-scale mining projects. CMDC also has pending application for an Environmental Compliance Certificate (ECC) for large-scale mining operation. The Mineral Property has been an area of interest for several geological and exploration works conducted by various local and foreign mining and development companies. Exploration works were done by Olympic Mines and Development Corporation (OMDC) in 1970s and late 1996, Vantage Mining Group (VMG), as commissioned by Pacific Nickel Holdings Limited (PNHL) in 1997, QNI Philippines, Inc. (QNPH) in 2001, and most recently by a Mining Study carried out through the initiative of CMDC.
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| Competitive Strengths |
OPRG's competitive strengths are as follows:
- Approved Mineral Production Sharing Agreement (MPSA);
- Maximized project term;
- Mineral property composed of two nickel mines;
- Measured Mineral Resources classified in due course as proved ore reserves;
- Marketable ore reserves;
- Potential of unexplored areas of the mineral property;
- Capability to capitalize on global demand for nickel ore.
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| Strategic Plan |
- OPRG, through its pioneer projects in Pulot and Toronto Mines', envisions itself as the principal listed vehicle for Philippine mining tenements. OPRG plans to fold-in additional mineral properties in the near future by applying for exploration permits and/or MPSAs in other claim areas.
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| OFFER DETAILS |
| Offer price/share |
P2.68 |
| Offered Shares - Primary |
300mn |
| General Public/Underwriters (70%) |
210mn |
| Local Small Investors (10%) |
30mn |
| Start of Offer |
10 December 2007 |
| End of Offer |
14 December 2007 |
| Target Listing Date |
19 December 2007 |
| Estimated Primary offer proceeds |
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| Property, Plant and Equipment |
89% |
| Initial working capital requirements |
11% |
| Total |
P804mn |
| ORMG Top shareholders as of 05 October 2007 |
| |
Pre-IPO |
Post-IPO |
| Shareholder |
Shares |
% equity |
Shares |
% equity |
| Citimax Group, Inc. |
479,870,200 |
41.655 |
479,870,200 |
33.048 |
| Golden Spin Realty, Inc. |
444,071,200 |
38.548 |
444,071,200 |
30.583 |
| Billion Apex Development Ltd. |
99,999,000 |
8.680 |
99,999,000 |
6.887 |
| Amor L. Dionisio |
50,000,000 |
4.34 |
50,000,000 |
3.444 |
| Bernardino M. Venturina |
50,000,000 |
4.34 |
50,000,000 |
3.444 |
| Ma. Corazon Leynes-Xavier |
25,999,800 |
2.2561 |
25,999,800 |
1.790 |
| Caroline L. Tanchay |
1,000,000 |
Less than 1% |
1,000,000 |
Less than 1% |
| Ferdinand M. Pallera |
1,000,000 |
Less than 1% |
1,000,000 |
Less than 1% |
| Fernando B. Esguerra |
50,000 |
Less than 1% |
50,000 |
Less than 1% |
| Artemio G. Taquero |
10,000 |
Less than 1% |
10,000 |
Less than 1% |
| Antonio T. Ong |
1 |
Less than 1% |
1 |
Less than 1% |
| Alonzo C. Espanola |
1 |
Less than 1% |
1 |
Less than 1% |
| Irving Lin |
1 |
Less than 1% |
1 |
Less than 1% |
| Elvira C. Chan |
1 |
Less than 1% |
1 |
Less than 1% |
| David Attewill |
1 |
Less than 1% |
1 |
Less than 1% |
| Pubic |
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300,000,000 |
21% |
| Total |
1,152,000,205 |
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1,452,000,205 |
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| ORIENTAL PENINSULA RESOURGCES GROUP, INC. SUMMARY OPERATING DATA Calendar year December (in P'000) |
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2008F |
2009F |
2010F |
2011F |
2012F |
| Gross Revenues |
207,900 |
2,520,000 |
2,520,000 |
3,780,000 |
3,780,000 |
| Less: National Excise Tax (2%) |
4,158 |
25,200 |
25,200 |
37,800 |
37,800 |
| Less: Environmental Tax (1%) |
2,079 |
12,600 |
12,600 |
18,900 |
18,900 |
| Less: Municipal Excise Tax (0.8%) |
1,663 |
10,080 |
10,080 |
15,120 |
15,120 |
| Net Revenues |
200,000 |
1,212,120 |
1,212,120 |
1,818,180 |
1,818,180 |
| Cost of Goods Sold |
62,370 |
378,000 |
378,000 |
567,000 |
567,000 |
| Net Operating Income |
137,630 |
834,120 |
834,120 |
1,251,180 |
1,251,180 |
| Admin. Overhead |
21,000 |
21,000 |
21,000 |
21,000 |
21,000 |
| NIBIT |
116,630 |
813,120 |
813,120 |
1,230,180 |
1,230,180 |
| Interest Cost |
44,468 |
40,020 |
35,574 |
31,127 |
26,680 |
| NIBIT |
72,162 |
773,099 |
777,546 |
1,199,053 |
1,203,500 |
| Net Profit Margin (%) |
34.71 |
61.36 |
61.71 |
63.44 |
63.68 |
| Gross Profit Margin (%) |
56.10 |
64.53 |
64.53 |
65.09 |
65.09 |
| RoE (%) |
12.08 |
56.42 |
36.20 |
35.83 |
26.45 |
| ROA (%) |
10.70 |
55.10 |
35.88 |
35.93 |
26.77 |
| Assuming ECC is granted |
| NPV@10% |
10.15 |
| NPV@12% |
8.65 |
| NPV@16% |
6.43 |
| Assuming ECC is not granted |
| NPV@10% |
0.36 |
| NPV@12% |
0.31 |
| NPV@16% |
0.24 |
| Pluses |
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Challenges |
Demand prospects for nickel
OPRG is taking advantage an ore supply deficit in the amount of 44k MT as of year end 2006. The nickel ore will primarily be exported to China and Australia via OPRG's direct contact smelters. At present, there is a growing demand for nickel which is used in infrastructure, water treatment facilities, tower stations, pollution control devices and food industry equipment. Global nickel consumption is expected to reach 1,530mn MT by 2008, with some 26% going to China. China's imports of nickel ore from the Philippines is expected to increase to 6mn MT by yearend and 7mn MT next year.
Fairly valued on NPV potential
Based on our preliminary estimates, the resulting production assuming 2k tpd for 2009 (assuming 50% probability ECC for large scale mining was approved) and conservative pricing of $50/MT nickel ore, the resulting net present value (NPV) per share based on 10% discount rate would be at P5.02/share vis-ā-vis the offer price of P2.68 apiece. Our assumptions cover $12.5mn projected capex for the undertaking.
Marketable ore reserves
The mine exhibits high grade nickel laterite ores of 1.6%, comparatively higher than the average nickel ore content of most explored mineral deposits in the country at only 0.9% to 1.3% and Japanese grade-ore which has 1.5% nickel content.
Saprolite contents
The firm drilled only until a depth of 5ft., via open pit mining, where it discovered limonite containing 0.8% to 1.5% nickel content. OPRG intends to dig deeper, to reach saprolite ores which contain a higher nickel grade of 1.8% to 2.3%. Saprolite reserve is priced at $75-$80/MT compared to limonite which is priced at $50/MT.
Business Consolidation
There will be 2 more subsidiaries to be incorporated in OPRG. These firms will explore nickel and chromium in neighboring areas, increasing the value of OPRG's mines upon full operation.
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ECC dependent
CMDC has pending application for an Environmental Compliance Certificate (ECC) for large scale mining operation. Continuance of operation would be severely affected if either CMDC's ECC for small scale mining is cancelled or if pending application for large-scale mining is not approved by DENR. Until the ECC for large scale-mining is approved, OPRG's production would be limited to 50k MT/mine.
Pending litigation
A recent article came out where Platinum Group Metals Corporation (PGMC) is disputing OPRG's claim on mining sites. PGMC asserted it had the exclusive right to operate the mineral property through an operating agreement entered with Olympic Mines and Development Corporation (OMDC), the original applicant of the mineral production and sharing agreement (MPSA) for the sites. OPRG responded that PGMC's claim in Narra has no material effect on operations since they are currently developing the Pulot mine. Furthermore, the ECC's for the said site will expire April 2008. Note that no ruling has been made on this matter.
No profitability record
OPRG was just incorporated April this year. Consequently, the firm has no profitability record or operating history. The mine site however was already existing in 1970's which was operated by Olympic Mines and Development Corporation. OPRG was privileged enough to conduct an IPO under special rules for mining companies which bypassed stringent listing requirements including, 3 year profitability record, 5-year operating history and market capitalization and tangible assets amounting to P500mn.
Insurance and Uninsured Risks
The business is exposed to risks (harmful environmental conditions, industrial accidents, labor disputes, natural phenomena, etc.) which may cause damages to property, environment, properties of others, operational delays, monetary losses and possible legal liability. Insurance will not cover all risks related to the business while insurance premiums may prove to be economically unfeasible, unavailable, and/or inadequate. Losses from uninsured risks may cause an adverse impact on the operations and financial performance of OPRG.
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