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Saturday, September 7, 2013

Blumont's meteoric rise raises concerns

Published on Sep 07, 2013

Mining counter's huge gains don't square with the firm's Q2 results

By Goh Eng Yeow Senior Correspondent

THE jitters among the blue chips have not soured traders' appetite for some of the sexy mining counters now in play.

One of the most appealing has been Blumont Group, which gained an astounding 38.7 per cent in the same four weeks that saw the benchmark Straits Times Index tumble 5.7 per cent.

Even the discomfort flagged by some brokerages such as UOB Kay Hian, which requires clients to have upfront payments if they want to buy Blumont above a certain cash limit, has failed to quell the exuberance.

The counter simply shrugged off the worries and carried on with its rocket-like ascent.

It also outperformed the rest of the mining plays, which chalked an average gain of 6 per cent last month, according to the Singapore Exchange's My Gateway website.

It left some traders with burning questions over the sustainability of the share's gains.

Financial consultant Mano Sabnani said: "Blumont's rise is amazing and defies logic. It has jumped from two cents in June 2011 to about $2 now."

It ended two cents down to $1.99 yesterday on a volume of 12.05 million shares, valuing the company at $3.4 billion.

That makes Blumont more valuable than well-established firms such as container shipper Neptune Orient Lines, which is worth $2.87 billion, or transport operator SMRT, valued at $1.96 billion.

Mr Sabnani's concerns are understandable. In its second-quarter results, Blumont reported revenue of $714,000 and a hefty bottom line loss of $24.1 million. They are not exactly the type of financials in keeping with a company worth $3.4 billion.

It recently proposed to raise $43.05 million in a one-for-two rights issue by issuing 861 million new shares at five cents apiece.

My Gateway also has this note of caution on mining plays: "Investors should be aware that MOG (mineral, oil and gas) companies may undergo long periods of time without making economic realisation, and may return to the market for several rounds of fund-raising for further project development."

One key sector risk is that a company may not be able to progress to the next stage of development, or to a stage where it is able to generate revenues, it added.

For now, however, investors may be more enamoured with the string of investments Blumont has made.

The company, which is seeking approval to change its name to Blumont Phoenix Corp to reflect the change of its business to mineral and energy resources, summed up the various ventures it had taken up since late last year in a recent statement to the SGX. It included investments in an iron ore company in Indonesia, stakes in coal mining companies and in firms with exposure to gold, uranium and base metal mining.

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