The Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) (WHSP) share price could be boosted by a potential IPO of its Round Oak Minerals business.
What is Round Oak Minerals?
It describes itself as a growing producer of copper, zinc, gold and silver, with well-established open cut and underground mines in Western Australia and Queensland and a major copper development project in Victoria.
That copper-zinc project in Victoria is called the Stockman project. The Round Oak Board has approved funding for the definition phase study for the Stockman project. The definition phase study is expected to be completed by the end of the first quarter of 2022 and is the final step prior to project construction.
What is WHSP planning?
According to reporting by the Australian Financial Review, WHSP is thinking about doing an initial public offering (IPO) of Round Oak.
The newspaper reported that institutional investors were invited to a “non deal roadshow” for Round Oak this week and the expected outcome is that WHSP will list the business and retain a large shareholding, like it is with TPG Telecom Ltd (ASX: TPG) and New Hope Corporation Limited (ASX: NHC).
There is a lot of investor excitement about copper because of potential for demand for copper may outstrip the supply.
The AFR also pointed out that copper prices were US$4.20 per pound, which was double what it was in March 2020.
How is Round Oak performing?
In a recent update about WHSP’s expected FY21 performance, there was a section about Round Oak.
Round Oak expects a FY21 regular net profit in the range of $64 million to $68 million. That’s a significant turnaround from the FY20 regular net loss of $43 million as commodity prices, primarily zinc and copper, improved and a number of its mines turned into the production phase.
Final thoughts about Round Oak and the WHSP share price
Listing Round Oak seems like an interesting move. Whilst it’s a good idea to financially access the success of Round Oak, it really depends on the price that WHSP can get. If copper prices are going to keep rising, or stay strong, why wouldn’t WHSP want to hold onto the entire Round Oak business? It’d be interesting to know the management’s thinking behind the move, if it goes ahead.
I think WHSP is one of the best businesses on the ASX, but the WHSP share price doesn’t represent wonderful value for me at the moment. I’d be looking to buy shares at around its net asset value (NAV), perhaps a little higher.
