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Saturday, July 19, 2008

Sandur Manganese & Iron Ore:-From bankrupt to money spinner

Scripscan:Sandur Manganese & Iron Ore
Bse Code:504918

Story:I met recently the management of Sandur Manganese & Iron Ore (SMIO),a pure mining play on iron ore and manganese ore.The company has extractable reserves of 5mn tons of iron ore and 18mn tons of manganese ore in Sandur area of Bellary District of Karnataka.SMIO is one of the top 5 manganese ore producers in the country. SMIO exports 50% of its output to steel and ferro alloys producers in Japan and China.SMIO has extractable reserves of 5mn tons of iron ore (Fe~50%, low grade) and 18mn tons of manganese ore (Mn-28-45%, medium grade) in Sandur area of Bellary District of Karnataka.

According to the management, out of the 2.2mn tons permissible mining output, iron ore and manganese ore would respectively constitute 85% and 15% of the total.SMIO has recently contracted iron ore (Fe-~50%) at $80/ton while Mn ore (45%) grade ore was contracted at Rs38,000/ton for Q2FY09. If i take into consideration management's guidance on the production front and incorporate current ruling prices of both the ores, then i believe management's guidance on the financial front for FY09 can be easily surpassed.

Company have started the process of dematerialisation of shares and it will take anaother 3 months and anyways 90 % stake is with promoters(out of which 15 % has been issued to banks after ots settlement in 2006)

The management has given a guidance to clock turnover and profits of about Rs 1,200 crore and Rs 600 crore respectively in FY09, if manganese ore prices continue to rise."Of that, Rs 300 crore will be from manganese ore even though the production is just 15% of the total ore production."

Conlcusion:At present prices of 900rs its quoting at a PE of less than 2.5 times its forward earnings.I expect the scrip to outperform the markets in a major way going forward.

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