Thread by @puppyeh1

OK normally I would write this up for my subs but since @IBKR won't let me trade Oslo Growth listed stocks, I present Rana Gruber, $RANA.OL, to my Twitter peeps

THREAD

$RANA.OL is a small iron-ore miner in Norway. It just listed a week ago at 49.5 NOK. Price now is 68 NOK. There are 37.4mm shs out = 2.5bn NOK mkt cap, and 190mm NOK bank debt at yr end (which will be near zero imminently).

So all in EV is say 2.7bn today...

Last yr they produced 5.1mt of ore, and generated 681mm of EBITDA at 51% margins. Ie its on ~3.8x EV/EBITDA LTM...but given where the iron ore curve is (or was), its on more like 2.4x EV/EBITDA this year:

What assumptions do they use to get here? This iron ore forward curve. You can see it steps down pretty aggressively thru 2021. Current spot Fe China benchmark is ~$174/t.

Basically looks to me like they're using $130/t avg for 2021. At current spot they'd add another ~600mm NOK in EBITDA, all else equal. Not bad.

Keep in mind they are levered to USD/NOK too. Higher USD = more revs, lower NOK = lower costs. so higher USD = good!

The asset base has been around for a century and proven reserves are ~120mt (ie >25yrs of production). Meanwhile the resource base itself appears massive. More importantly, the co says it has 'fully invested' for the current mine plan (through 2025):

This is why capex requirements are de minimus for the foreseeable future:

A cpl other things. The asset is relatively high cost (~$48/t vs the big boys <$20/t) but is v well located - 30km from a dedicated port and only 3 days shipping to European steel mills (5x faster than Brazilian ore to Europe). So this asset produces through the cycle:

So this is a 3rd-quartile (but 'always on') producer, with no debt, a 30yr asset, trading at <2x EV/EBITDA on spot, ~3.5x EV/EBITDA on a conservative forecast. So far so good - but how are we getting paid?

Always the key question...

Thankfully the prospectus is exceedingly clear. The div will be paid quarterly and at 70% of net (im assuming high end bec $RANA.OL is gushing cash and will have no debt soon enough):

D&A is ~100mm NOK. So EBIT (on guidance) is 1.05bn; on spot is more like 1.45bn. Tax either number at Norwegian rates (22%) and you get 820mm/1131mm in net income. 70% of this is 574mm/791mm.

Versus a 2.54bn market cap...that is, a 23-31% DIV YIELD🤑🤑

Are we having fun yet?

OK so a 25% yielder on a (basically) unlevered asset with a 30yr (minimum) mine life leaves you a lot of buffer for stuff to go wrong...

Scratch that. Its batshit and obviously the wrong price. Third-tier Aussie iron ore names ($MGX.AX, $GRR.AX) don't trade wider than 10% yield

Obviously the large caps like $BHP.AX and $FMG.AX deserve a premium and on spot basis $FMG.AX at least is in the double digits

$RANA.OL is tiny, illiquid, and lower quality. But why isn't 15% yield reasonable? Still v wide. No debt, no large capex needs...

At 15% yield on my two scenarios above, $RANA.OL is a 103 - 159 NOK stock, good for a cool 50-133% upside.

You're welcome😎😎

But why are we so lucky? (or you, not me, stupid @IBKR !)

This is a VERY recent IPO. In Norway. On the junior exchange. Many sophisticated investors like me can unfortunately not buy it. There is no analyst coverage (yet). The co has not reported their first Q (and declared the fat div), yet - but this happens next week...

As for the seller - LMS Mining sold down half, they still own half, subject to a 1yr lock, and are the main contractor for the mining operation. They still run the co, and seem invested/aligned enough to me....yes they took some chips off, but they're still at the table...

Risks: iron ore (duh), liquidity, operational disappointments (no edge here).

On the other hand I think most of the value here is in the discovery. This shouldn't trade at 25% yield on an unlevered B/S for long. At 15% yield we can have discussions about sustainability...

....ie once the stock is 105 NOK. Enjoy 🤑😎

(disclosure: no position in $RANA.OL)

DYODD, GLTA 🙏

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