2010 Philex Mining Corporation Review




Philex Mining Corporation or PX, which was incorporated in 1955, are organized into two main business groupings: the mining business under Philex Mining Corporation, and the oil and gas business under Philex Petroleum Corporation.

Business Details:

1. Ore Mining
Philex Mining Corporation - Padcal mine, the company's current bread and butter, produces copper concentrates, containing copper, gold and silver with declared life up to 2017 or more. Exploration and development of new mine sites are on-going   . The Silangan Project is the project with the highest potential has initial findings of estimated 191M tons of resources.


2. Energy
Philex Petroleum Corporation - the company has long been a silent investor in energy exploration like coal, oil and gas as shown below:

a. Forum Energy Plc (FEP) - owned 64.5%, an oil exploration company owning participation interests in several service contracts in the Philippines particularly the Sampaguita natural gas discovery in northwestern Palawan with at least 3.4 trillion cubic feet of proven reserves.

b. FEC Resources, Inc (FEC) - owned 51.2%, an oil exploration company with shares in FEP and Lascogon Mining Corporation

c. Pitkin Oil Ltd. - owned 18.46% Pitkin reported the discovery of oil in the Red Emperor in Vietnam which flowed oil at a combined rate per day of 3,265 barrels together with 8.1 million standard cubic feet of gas.

d. Brixton Energy & Mining Corporation (BEMC) - owned 100%, is a coal operation in the debugging stage.

e. PetroEnergy Resources Corporation (PERC) - owned 10.31%, is a locally listed company engaged in oil exploration and in providing technical services to companies exploring for oil in the Philippines. 




Business Performance Review:
Even with the turmoil years of 2008 and 2009, which is the economic crisis time, PX's revenue have  increased its revenue for the past 6 years as shown below (Click to zoom).

The same with the Net Income and Operating Cash flow which grew significantly from 2005 as shown below (click to zoom).

As per end of 2010, 97.5% of the revenue is attributed to mining operations while 2.5% from the energy section.

Profitability:
ROE (2010) = 19.09
Average ROE for 5 years = 35.36
Net Profit Margin = 31.11%

PX obviously is a very profitable company with last year's Return of Equity (ROE) of 19.09 which is above the  recommended standard of profitability as per literatures(ROE of 15 is good). Do not be confuse that last years ROE became lower than the 5 year ROE as a negative sign because the equities of PX have increased massively for the past 6 years so the based is higher in 2010.

Growth:
Annual Net Income Growth Rate = 57.49% (for the last 6 years).

The company are growing rapidly and are expected to increased with the developments of it Energy Exploration business particularly the coal plant and natural gas.

Risk and Debt:
DE Ratio = 24 (Debt to equity ratio)
Current Ratio = 3.4

PX's management has done a wonderful job in eliminating its debt from DE Ratio of 197 in 2005 to the current level. The company has high liquidity as shown in its current ratio (current asset/current liabilities) so meeting its financial obligation is not a problem. Literatures suggest that DE Ratio of 100 or less is good leverage level while Current Ratio of 1.5 or higher is good for liquidity level.

Dividend:
Dividend Yield = 1.85%

Valuation:
PE Ratio = 21.48
PB Ratio = 4.17
Intrinsic Value = P22.7 per share
Current Price = P17.4 (as of Apr. 27, 2011 closing)
Upside = 30.71%

(click to zoom the illustration)


Using Discounted Cash Flow, intrinsic value is calculated based on 2010 Annual Report. Cash flow is projected to grow at 35% and discounted at 15% which includes the worst case scenario interest rate and other risk.

Other Factors:
In Dec. 3, 2009, it was reported that Hong Kong's First Pacific Co. Ltd bought a 9.2% stake in PX at a price of P21/share.

Conclusion:
PX is a good value stock with a lot of growth potential. It is a good buy at price lower than P15 or at a 20-30% margin of safety from the estimated value.

Disclaimer:

The assumptions used above are based only on historical data and doesn't guarantee future performance of the company. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision.





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