Next Investors logo grey

Undervalued Agrimin developing world’s largest undeveloped SOP deposit

Published 12-SEP-2016 15:52 P.M.


3 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.

Click Here to View Latest Articles

The last five months has been a period of transition for emerging Sulphate of Potash (SOP) producer, Agrimin (ASX:AMN). To provide some background, SOP is a specialty fertiliser with excellent market fundamentals and limited options for global supply growth.

As such, AMN is leveraged to increasing global food demand and the challenge of achieving food security. The Mackay SOP project is the world’s largest undeveloped salt lake SOP deposit and comparable to major SOP producing salt lakes.

As AMN confirmed positive geotechnical results regarding its Mackay project located in Western Australia, the company’s shares surged 25% from 13 cents to 16 cents.

Next Investors Image

The share price kick following the return of geotechnical results proved to be just the start of a much more significant rally as the company hit an all-time high of 57 cents. The 250% share price increase was supported by a number of promising developments, culminating in the completion of a scoping study in late August.

This underlined some compelling financial data surrounding the project, prompting management to progress to a pre-feasibility study.

It was also the catalyst for Julian Lake from Euroz Securities to initiate coverage of the stock and he has a speculative buy recommendation on the company with a price target of $1.00 per share, representing a premium of approximately 100% to Friday’s closing price of 49 cents.

It should be noted that previous trading patterns are not an indication of future share price movements, and as such shouldn’t be used as a basis for investment. Also, broker projections may not be met and investors should seek independent investment advice in relation to any of the companies mentioned in this article.

Lake’s price target appears conservative if anything given that it implies an enterprise value to EBITDA value of approximately one. As a means of comparison, the global EV/EBITDA ratio relative to fiscal 2018 projections in the agricultural inputs sector is 8.6.

The average EV/EBITDA ratio for ASX listed stocks Nufarm, Elders and RuralCo Holdings is 7.5. Looking at a closer comparison in Avenira (ASX: AEV), which is yet to come into production, its EV/EBITDA is 4.7 based on the projections of Mark Fichera from Foster Stockbroking.

While Avenira will come into production earlier than AMN, Friday’s closing price of 49 cents implies an enterprise value of circa $64 million with the company having net cash of $3 million. This represents an EV/EBITDA ratio of circa 0.5, implying a discount of nearly 90% compared with Avenira.

Consequently, a share price at least in line with Lake’s target seems appropriate with the potential for upside as milestones are met and the project is derisked.

Again past performance is no indication of future performance and professional advice should be sought if considering AMN for your portfolio.

The prospective timeline for these events is outlined below.

Next Investors Image

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.