“We search for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now.”
Freehill Mining (FHS)
Freehill has exposure to the world’s highly sought-after minerals.
FHS’s near-term focus is on unlocking much greater value from its iron ore, copper and gold prospects.
The company has so far proven up 67 million tons of high-grade magnetite iron ore. The value of this resource well and truly covers the investment stock price, let alone what else might be proven up.
Only two of the 7 magnetite structures have been drilled, so there is massive upside potential to the size of the magnetite resource.
High-grade, low impurity magnetite iron ore is less polluting in steel making. It is in short supply and high demand by global steel mills, and commands premium prices. The company is rapidly advancing its magnetite resource to the commercial development stage.
FHS has also identified a very promising and large copper structure in its recently acquired El Dorado freehold tenements. Surface channel sampling yielded exceptionally high 2.5% copper and 1.32 g/t gold grades. Regulatory approval is being sought to commence drilling. This is only one of three potential El Dorado copper-gold targets.
Copper is a highly desirable commodity, and has doubled in price over the past year, as the world transitions to a low carbon economy. Electric vehicles use four times more copper than traditional petrol engines, and renewable power systems are five times more copper-intensive than conventional power systems.
The near-term is shaping up as a busy period for FHS, with multiple value catalysts materializing.
Price $22.68, Yield 18.6%
Fortescue is paying a record half-year dividend of $1.47, plus a 63 cent franking credit, taking the total dividend to $2.10.
The good news is that the iron ore price is now expected to remain strong for some time to come. This is due to strong Chinese demand and a prolonged continuation of Brazilian iron ore supply disruption.
FMG has established Fortescue Future Industries (FFI) for its aspirational goal to become one of the world’s biggest green energy companies, based on clean hydrogen and breakthrough CSIRO technology. Malcolm Turnbull has been appointed FFI’s Chairman.
FFI is examining an extensive portfolio of opportunities with the company due to deliver feasibility studies into a hydrogen project in Tasmania, and a “green steel” pilot plant in WA by the end of 2021. FMG will provide seed capital to FFI, however FMG emphasizes that each green project will be independently funded by debt, without recourse to FMG.
Harvey Norman (HVN)
Price $5.30, Yield 10.2%
Harvey Norman has achieved an outstanding financial result, with first-half net profit up 116% to $462 million. A record 20 cent per share interim dividend is being paid in May.
Gerry Harvey says “It’s the best retail in 60 years, not just in Australia, it’s in every country we are in,” as discretionary spending is redeployed. The positive momentum has continued in January and February with sales up 21%. New dwellings and major renovations could “open new opportunities and drive sales throughout 2021 and beyond.”
Price $4.80, Prospective 2023 Yield 15.2.%
URW is one of the few businesses that meets Warren Buffett’s dictum of “virtually certain to possess enormous competitive strength ten or twenty years from now.”
URW was formed in 2017 by the merger of Australia’s Westfield Corporation with the French based Unibail-Rodamco, to form the premier global operator and developer of flagship shopping centres. These centres would be hard or impossible to duplicate, and constitute a monopoly in the most dynamic cities in Europe, UK and the USA.
Covid has caused URW’s stock price to decline from $12 in 2019 to $4.80. With reduced income due to rent relief, government restrictions and snap lockdowns, the company has suspended dividend payments for the next two years. However, assuming shopping centre trading is soon back to normal, and the dividend is restored to pre-Covid level, the prospective 2023 dividend yield is 15.2%. This being the case, there will also be a large capital gain.
Disclaimer: This report is for the exclusive use of the portfolio management clients of Gavin Ross & Co Pty Ltd. It should not be relied upon in any way by anyone else. Events can change quickly, and we can change our mind about the desirability of a particular stock. We own investments in the stocks mentioned in this report and are a substantial shareholder in Freehill Mining Limited.