Resurgere Mines and Minerals was Incorporated in 1987, formerly Exfin Shipping (India) Limited, is engaged in the business of extraction and processing of iron ore products like lump ore and size ore.
It is predominantly a manufacturer of calibrated lump ore (CLO) and Iron Ore Fines and also engaged in merchant export of iron ore fines to China.
The company currently has mining reserves of 75mn tonnes in three different locations. However, it is now in the process of acquiring two more mines in Jharkhand and Maharashtra. These mines are expected to become operational by FY10.
Resurgere proposes to develop captive logistics infrastructure, which will help it in easy movement of goods from mines at comparatively cheaper costs. It has also decided to invest in ‘Wagon Investment Schemes’ announced by the Indian Railways
Valuation and concerns
Iron ore prices have been very strong and increasing every year since the past six years. The contract iron ore prices negotiated globally have increased by as high as 85% for iron ore fines.
We expect the company to benefit due to the strong pricing environment for iron ore. Spot iron ore prices in China have spiked as high as $180-200/tonne cif, during this year from $90-100/tonne last year.
On the valuation front, Resurger Mines and Minerals’ looks stretched compared to its peer Sesa Goa that is an established player and much bigger in size.
On post IPO Equity, the company would trade at a premium to Sesa Goa, which we believe is not justified. At the higher price band, the company is valued at a P/E of 11.7x on FY2008 fully diluted EPS of Rs23 as compared to Sesa Goa’s P/E of 8.5x.
Also, on EV/EBIDTA, the company is valued at 7.7x FY2008 EBIDTA, which we believe is over-stretched considering comparatively small scales of operation, risks from third party mines and execution risks. We keep AVOID on the IPO.