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Midwinter Resources has popped up on my radar screen over the past couple of weeks so I thought it might make sense to run the EB sliderule over what they are up to at the moment.
Shares and options in issue are as follows:
Undiluted
Shares issued : 41.7mn Ticker MWN * includes partly paid contributor shares 11.7mn paid $0.01
Number quoted: 30mn
Options issued: 18.3mn Ticker MWNOA
Options strike : $0.25 expiry 30th November 2011
So a simple calculation gives the company a market cap of $ 7 506 000 at today?s close of $0.18
MWN has $3.6mn in cash on its balance sheet representing $0.086 per share, including the 11.7mn contributor shares or $0.12 per share based upon the quoted total of 30mn shares. Either way it is a fair chunk of cash relative to the market cap.
In other words almost half the mkt cap is in cash.
I am not considering the diluted situation right now as the options are out of the money, although you should bear in mind that full exercise of these options will result in an additional $ 4.6mn in November 2011.
MWN has acquired currently a 49% interest in Capricorn Iron which holds promising Fe grounds in South Africa, the plan is to take this holding to 100% over the next few years on declaring a number of milestones as measured by reported JORC resources on the project. A full description of the schedule for acquiring all of Capricorn and the milestones that need to be achieved can be found in the MWN announcement to the ASX on 20th September titled ?Midwinter acquires interest in iron ore project.?
The Fe project is known as The Northern Lights Iron Ore Project which if nothing else is a nice name.
The Northern Lights area benefits from infrastructure such as paved roads, electricity supply from the South African grid and close proximity to the Limpopo river. So none of that silliness we see in some explorers who find a great resource 100s of KMs from the nearest road or railway and have no way of transporting it to market.
MWN?s aim in acquiring Capricorn is to create a JORC?d resource of 1bn tonnes of Fe grading 30% or more.
On the face of it 30% Fe does not sound very exciting, however, the company makes it clear that the Fe has very low impurities. In addition the mineralization is coarse grained and amenable to low cost concentration processes or benefication.
The largest continuous Fe anomaly in the Northern Lights area is a massive 10km by 1.5km in addition there are many more subsidiary anomalies.
On 8th October MWN flew a 1 500km helicopter aerial magnetic survey in 200m spaced lines from a height of 150m which produced some extremely positive readings. These can be seen in the September 2010 quarterly activities report.
In addition the report of 18th November shows more details of the magnetic aerial survey around the drill holes but more on that later.
After analyzing the aerial magnetic survey data for a few weeks a 3 000m RC drill program was begun on 17th November.
MWN was so pleased with the first drill hole that it took the unusual step of issuing an ASX announcement the very next day. Stating that MWN had intersected the targeted magnetite Banded Iron Formations (BIFs) in the first 2 holes. This confirms MWN?s aerial magnetic survey interpretations and now allows them to focus on similar anomalies at Northern Lights based upon the data from the aerial survey.
The drilling on the other anomalies, 6 in total for this drilling campaign is currently underway.
MWN also states that the drill cores from the first 2 holes will be submitted for assay and should be available before Christmas. It would appear that the assay labs in South Africa are not overwhelmed with work as they are in Australia.
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Now, if that lot wasn?t enough – this is where it gets interesting.
The share prices of MWN has been pretty much unnoticed for the last few months. There has not been much daily turnover and so a sudden flurry of buying all at once the moment the market opened caused me to mark the stock for some background research when time permitted.
On Monday 3 orders went through for a total of 102 000 shares all in the first 15 minutes of market trading. The buyers did not sit in depth on the bid side awaiting sellers, as you would normally do if there was no pressing reason to acquire the stock immediately. They also bought everything below 18c in an apparent hurry and then went away.
I have seen this before when a small explorer finds something above expectations in a drilling program.
Let us take a guess of the following ? could it be that the guys running the drill rigs know what MWN is beginning to uncover and have placed the odd personal order to acquire shares in MWN ? hence the need to buy straight of the offer.
Or
Could it be that personnel in the assay lab have received the first 2 cores and realized that the Fe results are well above expectations?
This is just a guess but it would help to explain the sudden flurry of buy orders all in a 15 minute window just as the market opened on Monday with a drill program underway and assays due before Christmas.
Then today someone bought 10k MWNOAs at 5c (I know, I know only $500) but again I have seen movements like this when drill cores and assay are known to a few contractors during the drill and assay program.
After all this is South Africa where the rule of law is not as religiously enforced as it is supposed to be in Australia.
Conclusion.
MWN seems to have sensible management who communicate with shareholders on a regular basis.
Its Northern Lights project, on the information available, looks very promising and is now being drilled and assayed.
The market cap is very low and there is a lot of cash on the balance sheet.
I can see very little downside from here and huge potential upside.
If the recent buying did come from contractors who have seen drill cores then MWN is due for an excellent Christmas and new year.
Given the size of the company I would argue that it is worth taking a small parcel of MWN or the MWNOAs as expected information flow from the company during the drill program and assay announcements should send the shares much higher very quickly.
It is also worth noting that the top 20 hold 44% of the issued shares and 76% of the issued options.
There have also been some substantial shareholder buy notices over the past couple of months as well.
The small number of available shares should therefore work to the advantage of shareholders and magnify gains in the stock, this would also make the MWNOAs attractive, even though they are out of the money.
Finally I must admit I do hold a small parcel of MWNs and MWNOAs but it is not a core holding in my portfolio just a speculative punt.
I have put this post together to see if anyone out there agrees with my positive viewpoint on MWN.
Any comments?
Be happy
EB
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