Growth Focus: Mount Gibson Iron Ltd (MGX)

by Patrick Taylor

Date of Data Capture: 2/8/2018
Classification:Iron Ore Miner
Current Price: $0.44
Market Capitalisation: $473 M
Forecast EBITDA Growth: 44.85%
Yield Estimate: 4.65%
Consensus Price Target: $0.55
# Covering Analysts: 2
Discount at Current Price: 25%
Price Target Trend: Increasing
Signal Timeframe:Quarterly-Monthly-Daily
TrendBias: Up-Flat/ Medium-Short

Medium-term: Neutral

Focus:Dividend Income Capital Growth
Set up Notes:
·    We are looking for the recovery to continue on MGX as it aims to get the Koolan Island mine dewatered and operational in 2019, taking advantage of an improving iron ore market.
·    Performance has been declining over recent years following the collapse of iron ore pricing and the 2014 flood of the Koolan pit, but plans aim for a return to mining operations next year.
·    Pricing has seen two major cycles unfold in the last 15 years, with pricing increasing by 1000% before declining by 90% each time, right now we seem to be at the beginnings of another rally if it can break through resistance overhead.
·    We see resistance targets at 45c, 50c and 65c with support layered at 40c, 35c and 30c.

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

It is unfortunate the famous cliché of the Chinese word for "crisis" meaning both “danger” and “opportunity” is completely incorrect as it would apply well to Mount Gibson Iron Ltd (MGX) as the company looks to recover from its 2014 flood disaster. The danger that befell the Chinese backed iron-ore miner could well become a great opportunity for investors as they look to recover their asset and return to mining.

Founded in 1996 and based in Perth, Mount Gibson is an iron ore miner currently operating assets in the Mt Gibson range as well as working to rebuild the sea wall that broke and flooded the main pit of their Koolan Island asset in late 2014. That disaster capped a rage to riches to rags vicious cycle over a 15 year period where the stock rallied 4000% from sub 10c in 2003 to reach highs of almost $4 by early 2008. In the volatility of the GFC the stock declined by over 90% by early 2009 before rallying over 1000% to almost reach $2.50 by late 2010. In the 5 years that followed pricing again declined by over 90% as the stock weathered falling iron ore prices and a catastrophic collapse of the sea wall and flooding of the main pit on its Koolan Island operation.

So this is a recovery story, and it could be a good one – the stock has plenty of cash after receiving the insurance payout needed to rebuild operations there and with plans under way this could be the time to step back in as rehabilitation proceeds with plans for reopening the mine and beginning shipping ore by first quarter of 2019. The stock market tends to be forward looking and price should begin to reflect the rebirth of this major asset and a recovering iron ore market.


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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