Plenty of CEOs think their company’s shares are undervalued. Some have a point, most don’t.
Mel Palancian, managing director of the ASX’s only pure (producing) zinc play, Red River (RVR), is in the former category, and he made his case at the Melbourne Mining Club’s Cutting Edge series during the week.
There was some emotion to it too, with Palancian saying he feared a low-ball takeover bid as he sees a lot more value for shareholders than the current $135m market capitalisation (28c a share) implies.
“To me the downside is we get taken out at $140m. And that would be a real tragedy for my shareholders,’’ Palancian said.
He gets support for the idea that Red River is undervalued by the 51c and 45c share price targets for the stock set recently by Baillieu Holst and Canaccord respectively.
A re-rating of the stock is clearly in the offing. Zinc prices are at 10-year highs, the Aussie dollar is amplifying the bumper prices and the company is now banking proceeds from first concentrate sales from its restarted Thalanga operation in north Queensland, about a 2.5 hour drive from Townsville on the Flinders highway.
Thalanga was picked up by Red River from the administrator of the failed Kagara Zinc in September 2014 for the knock down price of $6.5m and after pulling in $30m from a share placement at the start of this year, Red River got cracking on restarting the project.
Grandiose ambitions – and a dump in metal prices – undid Kagara. Palancian and his management team aren’t about to make the same mistake. Rather than bring back Thalanga as a 650,000tpa processing operation, Red River has brought it back at 325,000tpa.
The reason for that is simple enough. Palancian said that a post mortem on what had gone wrong for the previous owners found that every time Thalanga had focussed on high-grade fresh sulphide ore, it made money. And that is the focus of Red River.
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