Companies: CBM   

Simplicity is a virtue for Mark Burridge, the former mining geologist, analyst and investment banker now running Cambrian Mining. He is honing the once decidedly opportunistic mining investment concern into an operating miner with an emphasis on coal. The AIM-quoted company is making a £56 million paper bid to lift its 34 per cent holding in West Virginia coal producer and fellow AIM counter Coal International to 100 per cent and awaiting the outcome of 35 per cent-owned Western Canadian Coal’s review of several takeover and other proposals provoked by its tempting prospects in British Columbia.

‘If we do a good job of work, we’ll be a pretty simple company in a few months’ time,’ suggests Burridge, who hopes one consequence will be to end the ‘holding company discount’ that has been restraining Cambrian’s share price. He argues that new coal contracts from 1 April reflecting today’s high prices should transform three million-tonnes-a-year Western’s £50 million annual losses into ‘huge profits’ and justify an attractive offer.

Burridge, who worked at Canadian mining giant Barrick Gold, Merrill Lynch and Hatch Corporate Finance before becoming Cambrian’s chief executive last year, will not comment on suggestions that Western might bid for Cambrian instead. He indicates that Cambrian will seek access to Western’s cash flow by ‘selling out or through a partner’.

Floated at 30p five years ago, Cambrian’s shares hit 225p in February 2005, before it all turned sour. The sheer complexity of Cambrian’s portfolio structure, the thwarting of its formerly key holding – Asia Energy’s Phulbari coal project in Bangladesh – insider dealing by a former finance director and the accountancy authorities’ revision of 2006’s declared £38 million profit (on the timely disposal of Asia Energy shares) into a £4.6 million loss tarnished its ‘growth company’ image.

Cambrian’s shares had slumped to 50p by last December. Burridge’s mission has been to restore its fortunes and its stock market rating, and he has set about disposing of ‘non-core’ assets and restructuring the company.

Surging coal prices have helped. They have propelled shares in Western, floated on AIM five years ago at 76p, from a depressed 30p last November to 530p now, valuing the company at nearly £690 million. That is almost three times the £250 million AIM tag now sported by Cambrian, whose own price recently spiked to over 300p under the new regime.

As Western consults investment bank Morgan Stanley about how to respond to the various proposals now before it, Cambrian has been pursuing the other parts of Burridge’s strategy. Convinced that ‘coal is a sensible place to be’, he points out that analysts see even higher coal prices next year.

According to Burridge, Cambrian, with only modest gearing and £150 million of net assets, should be able to support useful output increases at Coal International. For now, Coal International still has to endure a ‘hangover’ of lower fixed-price contracts on much existing production, but later it will be able to reap more of the benefit of higher prices.

The third leg of the strategy is to dispose of Cambrian’s 56 per cent stake in depressed £19 million AIM minnow Xtract Energy, which has a ‘great portfolio’ of oil technology development ventures.

Here, the plan is either to sell Cambrian’s stake or to distribute its Xtract shares to Cambrian shareholders.

In the year to last June, Cambrian made a fairly meaningless £1.4 million pre-tax, which its tax liabilities turned into a net loss of £4.2 million, despite a near quintupling of turnover to £2.6 million. Burridge, who hopes the new-look structure will be in place by the autumn, comments that ‘we really had to get out of that hodge-podge – and in a few months we shall be’.

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Cambrian Mining	AIM	£24.22m	20.50p	-3.25p
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Other company articles:
Cambrian changes its spots			30/06/2008
Cambrian bids for Coal			29/05/2008
Cambrian revamp pleases			07/04/2008
Exploration Insights			03/03/2008
New funding for Coal International			23/05/2007