SINGAPORE (June 16): Iron-ore producer Southern Alliance Mining (SAM) launched its Initial Public Offering (IPO) on the Catalist Board of the Singapore Exchange on Tuesday.

Based out of Pahang, Malaysia, the company specialises in the production of high-grade iron ores and steel products as well as pipe coating materials for oil & gas operators.

Under the IPO, SAM will place 76 million shares at 25 cents each. Of these, 56 million shares are new while the remaining 20 million will be held by vendors. Collectively, the move is expected raise $19.0 million in gross proceeds.

The placement represents some 15.5% of the enlarged share capital 489 million, thereby giving SAM a market capitalisation of $122.3 million post-placement. Trading is slated to commence at 9am on June 26.

The IPO is priced at approximately 6.13 times the price-to-earnings of SAM’s FY2019 audited profit before tax.

PrimePartners Corporate Finance, a Singapore-based financial services group, is the sponsor, issue manager and placement agent for this IPO.

To CEO and Executive Director of the Group Pek Kok Sam, an IPO is a “significant milestone” and “an achievement for all at [the company]”. 

“SAM commands a unique market position given our good and long-standing relationships with our customers in both Malaysia and China, our established operating system and logistics infrastructure, and the proximity to road networks and ports,” he asserts.

“Our iron ore products are sold not only to steel mills but also to the oil & gas industry as raw materials for sub-sea pipe coating. This unique product mix brings us diversified revenue streams and market opportunities in two industry sectors.”

In its most recent 1Q20 ended March, SAM posted a revenue of RM79.6 million ($25.9 million). Overall, net profit after tax (NPAT) for the quarter came in at RM23.9 million, giving it a net profit margin of 30.0%. 

For the fiscal year 2019, it made a net profit of RM88.2 million, reversing its net loss of RM17.2 million in FY2018.  This follows a 92.9% surge in revenue to RM189.1 million in FY2019 due to an increase in its mining assets from the year-ago period.

“Despite the recent economic impact caused by the COVID-19 pandemic, the demand and price for iron ore have remained stable,” SAM’s non-executive, non-independent chairman Teh Teck Tee observes.

He adds that, “SAM is well-positioned to meet the demand for our high-quality iron ore products in the region upon the recovery of the steel and oil and gas industries as the stimulus measures is expected to drive demand".

His optimism stems from a resilient demand for iron ores as Southeast Asian countries are expected to continue to spend on infrastructure once the Covid-19 pandemic abates. Teh also expects the pipe-coating market to grow as oil & gas activities increase.

To this end, the $11.9 million in net proceeds from the new shares have been earmarked for investments in mining equipment and infrastructure. The funds may also be used for expansions through acquisitions, joint ventures, strategic alliances and/or the development of new mines.

The company will not receive any proceeds from the sale of the vendor shares.

For a start, the company is looking to define extensions to the existing Mineral Resources and Ore Reserves at its Chaah Mine in Johor Bahru. As at Oct 31 2019, the facility had 6.1 million tonnes of 51.2% Fe in reserves.

Additionally, it has its eyes on three iron ore facilities – Mao’kil, Chaah Bahru and Kota Tinggi - located in Johor Bahru, where it has been granted the rights for exploration and mining operations. Mao’kil spans 22.3 ha, while Chaah Bahru and Kota Tinggi are 19.4 and 79.1 ha respectively.

“We hope these [moves] will yield favourable results for us to meet market demand and drive our future growth,” said Teh.

Looking ahead, the company does not have a fixed dividend policy but is looking at a minimum distribution of: 10% of NPAT in FY20, 15% in FY21 and 20% in FY22.