Notion VTec’s acquisition to pave way for diversification

by **Cals** Wed 09 Oct 2013, 12:02

Business & Markets 2013

Written by Shalini Kumar & Lyana Shohaimay of theedgemalaysia.com

Wednesday, 09 October 2013 10:24

KUALA LUMPUR: NOTION VTEC BHD []’s recent acquisition of an equity stake in silver mining company Alcyone Resources Ltd would pave way for the hard disk drive (HDD) manufacturing company to further diversify, said its executive chairman Thoo Chow Fah.

At a briefing yesterday, Thoo stressed that the venture into silver mining did not mean that Notion was losing focus of its core business. “It is an investment for the future,” he told the audience, including investment analysts, fund managers and the media.

Currently, HDD parts and camera components are the two core businesses in Notion. Many were taken aback with the news that it bought a 19.9% equity stake in a loss-making silver miner in Australia for A$4.87 million (RM14.7 million).

Notion has emerged as the single largest shareholder in Alcyone Resources. It is granted with the option of subscribing to interest-bearing promissory notes, which will allow Notion to increase its stake in Alcyone by a further 10% for A$2.5 million.

In a note on Monday, Kenanga Research commented that the stake in Alcyone would give Notion access to a cheaper and consistent supply of silver for precision components manufacturing.

“Judging from the group is intention to diversify its earnings reliance from the HDD segment, we do not discount this investment is also for the future foray into making components handphone/tablets, PCs/laptops and automobiles, which require silver,” said the research house.

Thoo said it is possible to use silver as the raw material for the company’s HDD products without driving up the cost.

He said while the current international price for silver is at US$22 (RM70) per ounce from a high of US$49 per ounce in April 2011, the industrial demand for silver continues to grow as 70% of the world’s production is lost annually as a small part in billions of consumer products and it is uneconomical to recycle.

While silver is a natural by-product of the mining of other base metals such as zinc and lead, the global demand for base metals is low, resulting in the reduced production of silver.

Alcyone, which currently runs the only pure silver mine in Australia, on the other hand would not be affected by such setbacks.

According to Thoo, Notion’s investment will help bring in the much needed fresh capital to Alycone by taking up the unsubscribed portion of the rights issue. The fund raised would be utilised for upgrading of mining equipment.

“It’s a matter of upgrading the crusher that is used to break down the silver ore. The present crusher is being overused, so now what we are doing is to implement two crushers and therefore [the ore breakdown] can be done in two stages, which helps the machines last longer,” he said.

Alcyone non-executive chairman Dr Paul D’Sylva said the risks for the investment included a drop in silver prices and the AUD/USD exchange rate, but was quick to provide a reassurance that positive cash flow was expected by January next year.

“If silver softens or strengthens from where it is today, or if the exchange rate dips or rises from where it is today, then that spread takes our mine from being a profitable enterprise to being a bonanza enterprise,” he said.

For the 2013 financial year ended June 30, Australian Stock Exchange-listed Alcyone reported a loss after tax of A$10.38 million on a revenue of A$20.69 million. The miner has A$190,355 of cash on its balance sheet.

According to its latest annual report, Alcyone’s earnings were affected by the non-cash amortisation and depreciation of mining assets, the increase in financing costs, royalties and the write-down of inventory.

The mines, located in a tenement measuring 949 sq km, has an annual nameplate production rate of 1.28 million troy ounces and is valued at over US$28.2 million per annum.

This article first appeared in The Edge Financial Daily, on October 9, 2013.