$FNI Update as of 31 March 2015

Global Ferronickel Holdings Inc (PSE:FNI) last traded price as of 31 March 2015 is 1.84, a huge drop from 2.62 when I wrote about $FNI stock on top 5 reasons why FNI is a bagger stock.  

This stock is the “talk of the town” from twitter and FB fora and groups. The following factors could be some reasons on the negative sentiment of the stock:

1. The controversy of the CEO/President Joseph Sy citizenship has initially contributed to its negative sentiment of the stock although it was clarified and resolved in the disclosure.

2.  Termination of the Memorandum of Agreement as per disclosure between the Company and GHGC Metallic Ore Resources, Inc for the acquisition of 100% of the total outstanding capital stock of Ferrochrome Resources, Inc (FRI).  There was some discussion from sources, which is not confirmed by the Company that since chromite wasn’t going to be earnings accretive for the next few years, FNI excluded it because they wanted only instant cash generating mines inside FNI.

If Joseph Sy who is the President of FNI is also the Chairman and President of FRI, then there must be good reason why FRI is not included in the acquisition of FNI.

3.  The delayed follow-on offering  which is supposedly scheduled in March 2015 has also brought negative sentiment of the stock.

4.  Another contributing factor in the drop of the stock price is the declining nickel prices in the world market which is a valid indicator of the negative sentiment of the stock.  This is a major risk in investing nickel stock due to volatility of nickel prices.

5.  The negative perception against the insiders who are majority shareholders ( these substantial Shareholders: Huatai Investment Holding Pty Ltd.; Sohoton Synergy Inc; Regulus Best Nickel Holdings, Inc.) who allegedly take advantage of their billions of shares  acquired at 0.38 per share.  The broker “109” usually dumps shares when the stock price rises especially there’s positive disclosure, at the expense of the public investors.  It was allegedly facilitated by broker “109”.

If item 5 continues, even how good the stock fundamentally, these substantial shareholders can dictate the trend in the market.  There was a big joke saying that FOO will not happen because there was already a pre-FOO happening which was being sold at a discount by the Company through broker “109”.  In just a span of 2 months, broker “109” had sold almost 3.5 billion worth of shares.

We might be surprised on why “109” is selling billions of shares to the public.  Sohoton Synergy Inc is the largest shareholder of FNI, directly owned around 4.13 billions worth of shares or approximately 23.66% of the Company’s issued and outstanding share capital.  However, as per disclosure dated March 31, 2015, Sohoton Synergy Inc has left only with 8.23% of the direct outstanding shares.  Sohoton through broker “109”, has sold its shares to the pubic to have more liquidity and for some other reasons.

According to PSE rules, if there is issuance or transfer of shares or securities, private placements, etc, done and fully paid for within 180 days prior to the start of the offer period and the transaction price is lower than that of the offer price in the public offering, all shares or securities availed of shall be subject to lock up period of at least 365 days from full payment of the aforesaid shares.

If you remember, there was block sale facilitated by broker “109” at P3 per share.  One of the investors who bought 30M shares at P3 on March 30, 2015 could be subject for lock up period within 365 days as one example.  Are you wondering and confident that FOO is above P3 per share?

Below shareholders are subject for lock-up period, which means they could no longer sell at the public during the start of follow-on offering:

lock up

Take note that Sohoton Synergy Inc has initially acquired 23% of the outstanding shares, then reduced to 11.35% and just recently had left only at 8.23% of the outstanding shares as of 31 March 2015.  This shareholder is trying to take advantage to sell to the public reducing its shareholdings for whatever reasons, thereby increasing liquidity in the market.  While these shareholders are not yet prohibited to sell their shares to the public prior to follow-on offering, an opportunity for these big sharks to position themselves.  After acquiring CMT at par value, cold cash is precious.  We do not know the previous stock holders whose existing shares acquired at par value are joining the selling pressures.

Once schedule of FOO has been announced, these principal shareholders are no longer allowed to sell shares to the public until the end of 365 days, or after only 1 year. This is called their lock-up period.

The over-supply of these shares in the market due to reduction of shareholdings of Sohoton Synergy Inc has contributed to the drop of the stock price where the selling pressures are just too strong which is influenced by broker “109” thru Sohoton Synergy Inc.  As the stock price becomes yummier,  the so called “gurus” and “experts” are celebrating their accurate prediction.  Public investors are lucky if they have acquired the stock below P2 per share since there will be very huge upside potential of the stock in the near future.

Without looking at the technicals of the stock, taking an average price-to-earning ratio of $NIKL and $MARC, as per below table:

nickel

We can take an average P/E of (PSE:NIKL) and (PSE:MARC), which is 12.

Using the net income of FNI at 4.8B in 2014 (assuming that FNI has earned only 4.8B for full year 2014 instead of 6 months), EPS is 0.66.  Fair value of FNI is around P7.92 per share.  This is too big to imagine while the stock is trading at a bargain price of 1.84 per share as of March 31, 2015.  What if the stock drops to 1 to 1.40 per share as dictated by “market maker” since shares are acquired at 0.38 per share?  I expect the selling pressures by broker “109” will tone down if shareholdings of Sohoton Synergy has been adjusted already to its desired level end March 2015.

The only hindrance which may lead to its continued downtrend or range trade is the negative sentiment of the stock due to the investors’ anticipation that 2015 earnings may drop as prices of nickel is declining in the global market.  However, the price would normalize as we can see the narrowing supply of nickel in the world market while nickel ore ban export imposed by Indonesia is not lifted yet.  Besides, FNI has a 2015 production target of 6.5 to 7 millions WMT per annual shipment rate in the near to midterm from Cagdianao mine which is the existing mine sites.

FNI pic

FNI has mined 5.195 millions WMT in 2013, 5.408millions WMT in 2014 and target of 6.5 Millions WMT in 2015 excluding the newly acquired INC and future acquisitions.

Investing in $FNI is indeed not for faint-hearted.

Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of capital. The information provided in the website is only an opinion of the author and  does not constitute as legal advice, research or recommendation to buy or sell any securities.  The author of this article may be biased as he has accumulated shares of this stock.

14 thoughts on “$FNI Update as of 31 March 2015

  1. While the company has merits, the positive outlook ought to be balanced with healthy skepticism. My questions then are:
    1.) Why should we not take the lower P/E benchmark?
    2.) EPS based on the 4th quarter report (which seems unaudited by the way) is based on “weighted average shares” of 7.2 billion (10b+ unlisted shares were issued 12/2014 bringing the total to 17.4B). Shouldn’t we adjust this for forward-looking EPS?
    3.) How about additional FOO shares which can *potentially* dilute EPS?
    4.) Can it hit at least 4.8B income at current nickel prices? What if Indonesia suddenly lifts the export ban?

    Thank you.

    • Hi Brian,
      1. For a very conservative estimate, we can use the lower P/E benchmark or an average P/E in the industry is a good benchmark. We can use the average P/E of 12 or 8.

      2. If we use P/E of 10 as a conservative estimate, assuming net income 2015 of 4.8B (same net income in 2014 for 6 months due to lower nickel price in 1st half 2015 but production rate has increased to 6.5M per WMT. This is a very conservative estimate), EPS = 4.8/17.4 = 0.2758; FV conservative is around P2.76/share excluding the INC mine this year.

      3. The offer shares are shares of the company around 6.16B. I think this is a sale of primary offer shares of the company. Around 1.2B or 20% of the offer shares are intended for retail offer shares and trading participants while 4.9B or 80% of the firm shares will be offered outside the Phils. Therefore, additional FOO shares has no effect on dilution.

      4. Yes, I believe it can hit more than 4.8B considering that the company has a target of 6.5 to 7millions WMT of nickel ore. As what I know from the Company, nickel ore is generally priced as percentage of LME nickel price and considering nickel ore is not homogenous, a single reference price does not exist. Factors of nickel ore pricing by company is based on: 1. relative availability of different ore types 2. substitutability between ores/value in use 3. LME nickel price and 4. logistics cost

      Majority of the nickel ore sale by the company is coming from low grade nickel ore. Medium grade ore sale is only less than 1M WMT based on 2013-2014 sales. This low grade nickel ore has not substantially increased in price since Indonesian ore export ban whereas higher grade ore prices have skyrocketed. With the decline of higher grade ore prices, revenue has no huge impact. Although it may return to normal level in the second half of the 2015 as per forecast. Even Indonesia NPI production would reach 185,000 tons in 2018 in a midterm, it is still not sufficient to meet the demands as per CRU consulting.
      What if Indonesia suddenly lifts export ban? There must be negative sentiment of nickel stocks in a short term. Indonesia supplies 15% of nickel to world market and international miners in Indonesia is still allowed to export raw ore provided they construct smelting facilities. Last Nov 2014, Indonesia has reaffirmed its ban on unprocessed ore to encourage companies to build smelting facilities and export processed ores in the global market.

  2. FNI acquiring China nickel processing plant
    Manila BulletinManila Bulletin – Fri, Apr 3, 2015

    Global Ferro Nickel Holdings, Inc. (FNI), the third biggest nickel producer in the country, is acquiring a nickel processing plant in China for the further processing of the nickel ore from its mining operations in the Philippines.

    FNI Director Francis Chua said that FNI expects to wrap up the ongoing negotiations. Once completed, FNI will create its wholly-owned subsidiary in China.

    Chua refused to divulge the acquisition cost of the Chinese plant, but said it is substantial enough. The China plant has an estimated annual processing capacity of at least10 million metric tons of ferronickel ore.

    “This is a big new investment. Once they’re positive they would declare it to both the Philippine Stock Exchange and the Securities and Exchange Commission,” he said.

    The formerly PGMC is producing at least 8 million metric tons of nickel ore at its mining site in Surigao.

    According to Chua, the plant in China can process the ore that FNI exports to China into nickel finished products like billets. FNI will still have to import some of the nickel ore from the Philippines because the production from its Surigao plant is not enough to feed the huge China plant.

    Majority of the country’s nickel are exported to China for processing.

    “But the important thing here is instead of selling to China as raw ore, we have a Filipino-owned company that will process the ore into finished product for exports. And it could mean you could make better profit,” he said.

    “That profit will be going back to the Philippines,” he said stressing that the repatriation of the company’s profit could help address the issue of low Chinese investments into the country.

    Global Ferronickel was formerly called Southeast Asia Cement Holdings, a dormant listed holding firm that was taken over by Platinum Group Metals Corp. (PGMC) in 2014. The shares of the company are now being traded at the Philippine Stock Exchange (PSE) under the ticker symbol ‘FNI’.

    FNI primary stockholders are individual Filipino investors and other parties from Hong Kong and China.

    In 2014, FNI’s net income reached $120 million.

    • Hi Marlon, if you read the financial statement 1Q2015, PGMC mine is only in production between the drier months of the year between April to October. The loss of 215M for the 3-month period ending March 2015 represents the recurring general and administrative expenses of the Group.

  3. Hi Sir Technimentalist. I am an #FNI holder as of todate and I happened to read your update while trying to look for reasons to hold this stock.. My question is, is the FOO still happening this year considering that we are about to experience a market crash?… TIA

    • Hi James. Thanks for visiting and reading my blogs. I think the FOO will happen this year. I believe the Management is just looking for the right timing and waiting for some big development and positive news. This maybe the reason why they have rescheduled the stockholders meeting.

      Your phrase, “we are about to experience market crash…” has triggered me to immediately respond your query upon reading your comments. You must be kidding 😀 We are not experiencing a market crash but just a correction/pullback. We are not even yet in the bear market territory. This market is an opportunity to buy cheap quality stocks.

      You should not rely on stock picking in the website neither depend on what others say on strategy. We should stick to a trading or investing strategy which you think works for you. In my case, when I see FNI going down due to sell-off, I cannot fight the trend of the market. I decided to cut-loss and buy back at the bottom. When I bought it at an average price of 1.35, I decided to sell it at 1.7++. Then, I bought again. This time, I keep it for long term since I notice that when a stock is on a long range trade going up, if there is a catalyst, there must be a big move… I could not monitor its fluctuations daily.

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