www.pmhl.co.uk
Prosperity is an iron ore trader serving customers in the People's Republic of China (the 'PRC') and holds investments in entities involved in the manufacture and sale of cement and clinker in the same market.
Prosperity also has a real estate division and has recently entered into a number of conditional agreements designed to build up a portfolio of PRC property and development assets.
Prosperity Minerals shares advance as it agrees sale of iron trading business
Prosperity Minerals (LON:PMHL) shares advanced around 9 per cent today as the group unveiled plans to sell its iron trading business so that it can focus on Chinese real estate.
As a result of the deal Prosperity plans to pay US$60 million to investors via a special dividend.
In a stock exchange statement Prosperity said that the operating environment for the iron ore business has changed significantly since it joined AIM in 2006. It highlighted that in the past, the iron ore trading model was capital free and low risk.
Over the past few years it has become substantially more difficult to secure reliable sources of iron ore supply as major iron ore producers increasingly prefer to deal with steel mills directly, bypassing traders, Prosperity said.
Through a transaction with an associated company Prosperity International Holdings (H.K.) Limited - which owns 64.07 per cent of Prosperity Minerals Plc - the company will sell the iron ore business for US$38.6 million. The deal value has been determined by an independent valuer, Jones Lang LaSalle Sallmanns.
“While iron ore trading has been a good business for Prosperity in the past, the dynamics of the business are changing, requiring much more capital commitment from Prosperity,” said chairman and chief executive David Wong.
“As such, the Board decided that it is an opportune time to exit the business and focus on our PRC real estate opportunities.
“Following the disposal, we will be able to focus our management and capital resources on real estate investment and development, which I believe have greater upside potential and manageable risk based on our experience and knowledge of local markets.
“The company also intends to continue paying cash dividends to shareholders in coming years. I recommend this deal whole heartedly and look forward with great confidence.”
In terms of Prosperity’s valuation the market has applied a blanket discount to the stock because it appears to all intents and purposes to be a conglomerate with interests in cement, iron ore trading and property. It has therefore been deemed to lack focus.
Prosperity’s valuation isn’t helped in the minds of the British investing public at least by the dominant shareholding of founder David Wong’s Prosperity International, or the fact that its interests are in China, a nation few investors on this side of the world truly understand.
Counter-balancing this is a net asset value roughly double the current share price, while Prosperity also comes with a kicker for income investors. Paying a dividend at all makes the company something of a novelty on AIM and with a yield of more than 9 per cent it is particularly notable.
This bumper shareholder pay-out will now be enhanced further as a result of the iron disposal. Prosperity shareholders will receive US$0.42 a share through the proposed special dividend, which represents a total payout of US$60 million.
Both the disposal and the special dividend require approval and consequently Prosperity will now call an extraordinary general meeting for a shareholder vote. The company also plans to change its name following the divestment.
