Notion VTec’s silver bet

by **Cals** Mon 14 Oct 2013, 10:13

Business & Markets 2013

Written by Shalini Kumar & Lyana Shohaimay of theedgemalaysia.com

Monday, 14 October 2013 09:55

KUALA LUMPUR: Despite the cautious view analysts are taking of NOTION VTEC BHD []’s acquisition of a 19.9% stake in loss-making Australian silver mining company, Alcyone Resources Ltd, executive chairman Thoo Chow Fah said the move would be beneficial for the company as it could take advantage of the miner’s turnaround as well as the current depressed silver prices.

“This is an investment for the future. We also see that silver has uses in the memory storage market, and we are exploring the option of using it as a raw material for our hard disk drive (HDD) products,” he said.

Emerging as the single largest shareholder in the loss-making mining company, it also has a six-month option to subscribe to interest-bearing promissory notes which allow Notion VTec to increase its stake in Alcyone by an additional 10% for A$2.5 million (RM7.5 million).

“We will monitor the progress of the company over the next six months, and if it performs well, then we will consider exercising our option,” Thoo said in a telephone interview with The Edge Financial Daily.

If Notion VTec decides to exercise its option, it effectively crosses the threshold of triggering a general takeover offer, according to Australian Securities Exchange listing requirements.

However, Thoo explained that he did not have to make a general offer, as the option to subscribe to a further 10% stake was subject to Alcyone shareholders’ approval, therefore giving Notion VTec an exemption under the guidelines of the Australian Corporation Act 2001.

But he did not rule out the possibility of making Alcyone one of Notion VTec’s subsidiaries.

Notion VTec was first introduced to Alcyone by EquitiesTracker.com, a private equities company that specialises in investments in Malaysia, Singapore and Australia. According to Thoo, Alcyone only came onto his radar a month or two ago.

“Basically it was suggested as an investment option, and so we flew down to the mines to take a look at it. Things just moved forward from there,” he said.

Notion VTec has been exploring diversification options and the company is still seeking opportunities to make a foray into the robotics, oil and gas, and aerospace businesses.

However, RHB Research’s Chan Jit Hoong said he remained “uncomfortable” with the investment as Alcyone’s core business is in an industry unrelated to Notion VTec, which is a precision engineering specialist and manufacturer of high-precision components.

“Management has no prior experience and there are limited opportunities for synergistic benefits.

“If Notion VTec were to equity account for its 19.9% stake in Alcyone, it would prove negative for the company, given that the latter is still a loss-making entity. Assuming Alcyone registers a net loss of A$10 million in FY14 [2014 financial year], similar to FY13, Notion could book about RM6 million of losses in FY14. This potentially could lower our FY14 financial forecast by 25%,” he said.

Alcyone executive director Dr Paul D’Sylva is optimistic of a positive cash flow for the company by next January.

Currently, the international price of silver is US$22 (RM70) per ounce from a high of US$49 per ounce in 2011.

While silver is a natural by-product 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 Australia’s only pure silver mine, would not be affected by such setbacks, explained Thoo.

For FY13 ended June 30, Alycone suffered a net loss of A$10.38 million, on revenue of A$20.69 million. The miner has cash amounting to A$190,355 on its balance sheet.

For the third quarter of FY13 ended June 30, Notion VTec recorded a profit of RM40.13 million, on revenue of RM62.16 million, from RM19.84 million and RM95.83 million, respectively, year-on-year.

This article first appeared in The Edge Financial Daily, on October 14, 2013.