Wednesday, June 04, 2008

New Investment: Legend International

Legend International is a company run by Joseph Gutnick that is developing a major phosphate mine in northwest Queensland. The stock is an OTC-BB stock in the US, but following a successful private placement the company plans to list on the American stock exchange. The company also plans a secondary listing on the ASX. I bought some shares a few days ago. I compute that based on:

• The company's worst case scenario of a phosphate price less than half current prices
• Assuming that they still need to raise another $700 million to finance the development of the mine by issuing shares at the current share price.
• Applying a P/E of 10. Most fertilizer companies are currently trading at much higher P/Es. BHP has a P/E of 15. Rio Tinto 17. The Australian materials sector has a P/E of 14.

The stock should be worth $5 a share. It's currently trading for about $3.30. The nice thing about this project is that they don't have to find the resources, though proving the size of the reserve is needed. They mainly just need to build a mine, a pipeline to the port at Karumba in parallel with an existing pipeline used by the Century Zinc mine and extra port facilities at the port. They hope to be in production in 2010. I have some confidence in Gutnick, a previously successful miner - I don't think this is a scam - more a Fortescue Metals type story. The Atticus Capital hedge fund is also a major existing shareholder.

We'll see how this works out.

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