The fifth company from my first share screener, Grange Resources is an iron ore mining and pellet producing company based in Australia with a market capitalisation of AUD $150.45 million, a dividend rate of 10.99%, total debt to capital of 1.59%, and a PCF ratio of 1.82 (for a cashflow yield of 54.95%), according to the FT profile.
Its main activities are the mining, processing and sale of iron ore, and the ongoing exploration, evaluation and development of mineral resources, particularly the Southdown Magnetite deposit and associated pellet plant projects located on the south coast of Western Australia, 90 km northeast of Albany. Its Savage River magnetite iron ore mine is located 100 km southwest of Burnie.
After reading the above on the Financial Times website, even before I started reading the company’s 2016 annual report, I was already thinking: what is magnetite? What is the price of iron? How do I value it? And how do I value a mining company? I was already feeling uneasy…
Above is a chart of the price of iron ore for the last five years. From a high of over US $150 per tonne at the end of 2012 it went down to less than US $40 in 2015, and back up to $71.80 as of September 19, 2017.
As we can see from the five year chart of its share price, this company is highly dependent on the vagaries of the iron ore market, and I can’t predict its price, since I don’t know how to research changes in the supply and demand of iron (as of yet).
Even though the 2016 annual report is only 72 pages (making it the shortest one yet), analysing this company adequately would require a huge amount of time to learn about mining valuations and commodity markets (which I don’t like anyway since, most of the time, price developments are unpredictable). I don’t think I can understand this company right now. Therefore, Grange Resources goes into the ‘Too Hard’ tray.
Oh, and according to Google, magnetite is ‘a grey-black magnetic mineral which consists of an oxide of iron and is an important form of iron ore’…