Southern Alliance Mining (SAML SP): Iron ore back to the moon

  • BUY Entry – 1.10 Target – 1.40 Stop Loss – 1.00
  • SAML is a high-grade iron ore miner and processor in Malaysia. The company sells iron ore of low levels of impurities with total Fe grade of between 62% to 65% to steel mills and trading companies mainly located in Malaysia and China. It also sells pipe coating materials that are crushed iron ore with a natural characteristic of a higher density for subsea pipes. 
  • SAML’s primary mining asset, the Chaah Mine, is an open mine pit consisting of two mining leases and covering an aggregate area of 225.7 hectares. The Chaah Mine is strategically located near existing road networks to ports. The company’s established supporting infrastructure and facilities consist of four fixed crushing plants, two lines of mobile crushers and two beneficiation plants both capable of operating on a 24-hour shift. The company has an approximate monthly production capacity of 60,000 tonnes of iron ore concentrates (not including pipe coating materials).
  • SAML’s 1HFY2021 net profit surged 47% YoY to MYR 51mn from MYR 35mn in the prior year period, driven by higher average realised selling price (ARSP) of iron ore concentrate. While current valuations are expensive, we expect further upside to miners as iron ore prices remain elevated due to strong demand. 
  • Spot iron ore prices surged above US$200 for the second time this year on media reports that the Chinese steel hub of Tangshan may plan to ease requirements for production cuts at its mills. Earlier in May 2021, iron ore prices broke US$200/ton for the first time on record due to strong Chinese demand, but fell after the Chinese government stepped in to cool prices. However, steel demand, a key driver of iron ore prices, is surging as countries reopen, while large miners are hampered by operational issues, further tightening iron ore supply. The decarbonation trend in the US, Europe and China is also generating additional demand for metals. 
  • We expect a surge in China’s iron ore imports in around June or July 2021, which would help lift up prices.

Iron Ore Prices (1-Year), US$/ton

Source: TradingEconomics

Iron Ore Prices (2008-2021), US$/ton

Source: TradingEconomics
SAML SP (Source: Bloomberg)