10/12/2009 - 00:00

The Eggers effect gives Manhattan a glow

10/12/2009 - 00:00

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What’s behind the interesting tale of two uranium miners?

ALAN Eggers made about $60 million for himself, and $1 billion for other shareholders in Summit Resources, when Paladin Energy bought it at the height of the 2007 uranium boom. And he’s well on the way to a second fortune with his return company, Manhattan Corporation.

But if you look closely at Manhattan, a curious investment question becomes obvious – is it overvalued by a factor of five, or is its neighbour, Energy and Minerals Australia, undervalued by a factor of five?

Astute speculators will spot the point being made by Bystander because there is only one obvious reason why Manhattan is valued on the stock market at $105 million and Energy and Minerals at $21 million, and that’s the Eggers factor.

To understand why this is so you need a map (above) showing mineral tenements and uranium-bearing mineralisation, in a patch of remote semi-desert, about 200 kilometres north-east of Kalgoorlie.

It’s there, in a spot first explored by Japanese uranium hunters in the 1970s, that Energy and Minerals has its foot on the Mulga Rocks ore body, which contains an estimated 54 million pounds of uranium, with an in-ground value of $2.5 billion at the current spot (or short-term) uranium price of $US45.50 a pound ($A50/lb).

Immediately to the south of Mulga Rocks, but on the same geological structure, is Manhattan’s Ponton project with its Double Eight uranium deposit containing up to 15.4 million pounds of uranium (worth $750 million).

Both companies are likely to find more uranium because the ore body they are exploring is a uniform ‘paleochannel’, or ancient river bed, where heavy metals such as uranium have been deposited in an easy-to-mine layer, either by conventional means or low-cost in-situ leaching.

Whatever happens with future mining, the issue today is that Energy and Minerals has a uranium resource three times the size of Manhattan’s, but with share price which is five-times less, leading to Bystander’s observation that either one is over-valued, or the other under-valued.

Obviously, there are other factors at work. Energy and Minerals has been locked in a nuisance legal challenge over its tenements and has done very little promotion. Manhattan has other prospects around Australian, and is led by a man with a moneymaking track record.

The differences are important, but they fade against the disconnection between how investors are currently valuing the two companies, which, it appears, would make a more attractive investment proposition if they merged, putting the greater Mulga-Ponton area under a single management team.

If that should happen then a world-class uranium deposit with extensive exploration potential would be created, which is perhaps why Manhattan has rushed up from 3.8 cents to $1.34 in just eight months, but doesn’t explain why Energy and Minerals has crawled from 17 cents to 23 cents over the same time.

Until now, and forgive Bystander for slipping into football jargon, the game has been one of ‘playing the man’, whereas Manhattan’s own map seems to show that a better result might be achieved by ‘playing the project’.

Risky business?

STICKING with a uranium theme, which is deliciously incorrect as the Copenhagen climate change gabfest drones on, it is worth considering a few thoughts of Alan Eggers, who seems to be about as politically incorrect as Bystander.

In the Manhattan presentation, in which he made a better case for buying Energy and Minerals rather than his own company, Mr Eggers points out a few home truths for the anti-nuclear lobby.

First graph (and turn away now if a dash of reality hurts) is a table showing the perceived health risk of a few human habits such as driving a car which has a risk of 144 fatalities per million person years, or an accident at home, 110 – compared with the nuclear industry which is 0.018.

Or his radiation exposure table, which shows uranium mining has less risk than the food we eat, and is vastly less risky than flying to Sydney.

Wages breakout

ANY business that survived the global financial crash in reasonable condition deserves a medal, but best claim it soon because the return of the resources boom might claim more victims than the crash.

One event, and one number, convinced Bystander that we are facing a summer of discontent, which might morph into years of trouble.

Woodside Petroleum’s dispute with part of its workforce was a reminder that militant union leaders are itching to test the Australian government’s new pro-labour laws, and what better time than at the start of the stampede to build liquefied natural gas projects, which will also be a time when the skills shortage re-emerges.

If the LNG boom is a red rag to militant unionists then the quoted $150,000 annual wage of a trades assistant (yes, an assistant not the real thing) is a staggering number.

Here we have men earning roughly triple the average wage demanding even more in the form of their own private rooms rather than learning how to use a five-star motel-style accommodation.

To make this situation even more alarming, imagine what Perth will be like when people doing low-wage (but important) jobs such as home help for the aged, go north in search of their $150,000.

Well read

IF you thought Perth’s $4.3 billion man, Andrew Forrest, was more fiction than fact, then his old school appears to agree. In the latest edition of Hale School’s magazine, The Haleian, is a picture of Mr Forrest opening the new Forrest Library. Facing him, on the opposite page, is a picture of stacked books – from the ‘young adult fiction’ category. Yes boys, the message is … read these, and you too can be like him.

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“He is dangerous who has nothing to lose.”

Goethe

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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