Resurgere Mines & Minerals is a company engaged in the business of extraction, processing, sale of mineral products and exploration & development of mining assets. RMM will enter the capital market on August 11, 2008 with an initial public offering (IPO) of 44.50 lakh equity shares of Rs 10 each. The price band has been fixed at of Rs 263-Rs 272. The issue will close on August 13, 2008.
The Company proposes to part finance the cost through term loans of Rs 860 million to be raised from banks, Rs 430 million through Private Equity funding.
Issue Objective
Presently, the extraction and processing activities of RMM at existing operational mining locations are outsourced to various service providers. In order to reduce its operational costs and to increase its volumes the Company intends to deploy own machinery, labour and other material resources at its existing mining locations as well as at newer mining locations that it purport to undertake.
Further, to facilitate easy movement of its products, the Company proposes to acquire six railway rakes for providing the same to railway authorities under the Wagon Investment Scheme. Under the Scheme, on handing over the purchased rakes to the railways, the Company would be provided with an assured supply of 4 rakes per month against each rake. Additionally, the Company will be entitled to a freight rebate of 10%. Furthermore, it will also be eligible to get additional 2 rakes per month against each rake given by it without freight rebate.
RMM has a diverse product range which includes various forms of iron ore such as Lump ore, Size ore, Calibrated Lump ore (CLO) and iron ore fine etc. and bauxite.
Valuation and concerns
RMM has applied for a mining lease located at Banda in Maharashtra, which is under process and it may take time to grant rights for the extraction of iron ore. From the valuation point, its post diluted earning per share is Rs 23.32. Considering the upper price band, price to earning multiple comes to 11.66 times of the FY2007-08 earning. The issue is reasonably priced considering the risk involved in the mining business.
As RMM is into mining activities, one should look at some issues that could affect the company in the future. Non-renewal of the mining lease by the state government for Nuagoan and Jharkhand mines could freeze the mining operations and affect the business adversely. Margins could be affected if the iron ore prices cool off due to a drop in demand for steel in the domestic or international market. Any changes in the government policies with regard to iron ore mining, duties, taxes could affect the operations. Investors to this IPO must consider the above factors before investing.
