Lemur Resources (ASX: LMR) is considering options to utilise the company's very strong cash position of $18 million, with the cash equating to around $0.095 a share (192.5 million shares in total) - yet the stock last changed hands at $0.063.
The board recently undertook a strategic review to consider how best to utilise the Lemur structure and cash reserves, which included an assessment of further work required at the Company's 99% owned Imaloto Coal Project.
Imaloto has a coal JORC Resource of 147.5 million GTIS, of which 81% is in the high confidence Measured and Indicated categories. The project is located in the Imaloto Coal Basin in Madagascar.
Board says well placed for acquisitions
An outcome from the review is that the board has determined Lemur to be well placed to consider new acquisitions, with a formal search already underway with contact made with various Global Investment Banks and Commodity Traders with non-exclusive mandates to be executed in due course.
The focus will be on acquiring new coal assets, although the board has also said that it is open to consider transactions in other commodities where the fundamentals remain compelling and the opportunity is value accretive to Lemur shareholders.
Lemur has the board experience to move the acquisition process forward quickly, due to their extensive global business networks, while being adept at asset identification and transaction execution.
Imaloto Coal Project
Studies at the Imaloto Coal Project indicate that the coal seams can be beneficiated to generate an export grade thermal product along with a lower quality coal suitable for consumption by a power station.
Lemur said that adequate information has now been obtained for the purposes of completing the Mining Scoping Study, which will include a preliminary mine plan and construction of a detailed financial model, and no further drilling is warranted at this stage.
Over the first half of 2013, the company instead intends to focus its Madagascan efforts on the following areas, which involve minimal cash outlay, such as:
- Construction of a detailed financial model for the Imaloto Project based on the findings of the Mine, Port and Infrastructure Scoping Studies;
- Continued work with Jirama towards having an Independent Power Plant ("IPP") concession awarded, and commencement of work on the IPP Environmental Impact Assessment ("EIA");
- Continued work with the Ministry of Transport in evaluating alternative port sites; and
- Effecting permit administration including renewal and transfers.
To say Lemur is undervalued is an understatement, considering the $18 million in cash reserves equates to around $0.095 in cash per share (192.5 million shares in total), yet the company's share price last changed hands at $0.063 - and therefore the company valuation is one-and-a-half times cash backed.
Further highlighting the undervaluation is that the company 99% ownes the Imaloto Coal Project in Madagascar, which hosts a JORC Resource of 147.5 million GTIS. Importantly with this resource 81% is in the high confidence Measured and Indicated categories.
The recognition of the ability to reduce the gap between "intrinsic cash backing" and current share price is a sign for investors.
With the review finalised and a new clear direction towards an acquisition highlighted, downside is clearly limited and potential for upside from an acquisition or realisation of value from Madagascar assets is higher.
We consider the current share price of $0.063 as obviously out of step with cash backing and any acquisition would change the current share price and valuation paradigm.
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