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MM thoughts on Carpentaria Resources (CAP)

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Question asked 21/08/2021

MM thoughts on Carpentaria Resources (CAP)

Hi James and team,

Thanks for your valuable insights and judgement calls over the last couple of years--my portfolio thanks you from the heart of its bottom line!! 2 Questions if may--at your leisure- regarding your thoughts on CAP (shortly to be re-named Hawsons Iron)? Background:-I have a “substantial” (top 40 I think) parcel in my pension phase SMSF portfolio -accumulated over last 2 years av price under 5 cents. It was an emotional (i.e. less than rational in a portfolio weighting sense..) purchase -me being an ex-Broken Hill “A-Grader”and all (BH natives will know what that means..lol)

The Company appears to have a massive, easily accessed very high quality resource of magnetite iron ore which is conveniently located -being close to Broken Hill and its mining centric infrastructure and skilled labour force. However its best case scenario right now is for first production in early/mid 2024 --Iron ore price permitting of course:

What are your thoughts at the moment on CAP and its future? … I guess the question is whether one quits whilst ahead now or not...I’m happy to hold for a couple of years if the path is realistically positive from here.
Setting aside the fact that there are any amount of “known unknowns” on the path to first production -is there any generally accepted way of calculating some kind of “big ball-park” estimate for a share price range once production starts (another assumption I know)?

It seems a black art--all seemingly plausible analysts calculations I have seen recently are literally miles apart....like 30-40 cents to 4 plus dollars!!!

Kind Regards, Paul

Answer

Hi Paul,

Carpentaria Resources (CAP) for those who aren’t familiar is an Iron Ore company that is looking to develop an Iron Ore mine near Broken Hill. The stock has been extremely volatile having risen by 400% only to more than half, all in just a few months. They raised capital in May through Shaw & Partners and I did see that deal come across my desk however at 15c I’m glad I didn’t look too hard at it. The key for this stock is obviously the Iron Ore price, it’s a highly leveraged play into a commodity that has fallen ~30% in the last month or so.

At MM, we think Iron Ore is nearing a low and as a consequence, CAP should be nearing a low as well, however we’d prefer to hold a leveraged position on an Iron Ore producer rather than an Iron Ore company still in the throws of conducting a banking feasibility study.

In terms of the ‘dark art’ of forecasting future value in a stock like this, there are so many variables hence the large range. I was chatting with Peter O’Connor on Friday about a few things and he agrees, the most influential aspect of getting commodity stocks right is getting the call correct on the underlying commodity. Slightly irritating for mining analysts I would imagine after spending so much time studying!

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Carpentaria Resources (CAP)

LAST UPDATED 20/08/2021 16:36

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