Pinned straw:
Friday 10-Nov-2023: Firstly, I've written plenty on LYL previously - which you can read here: https://strawman.com/reports/LYL/Bear77 including a straw titled, "Income, Growth, Both?" - which you can probably find towards the top of the pile here: https://strawman.com/reports/LYL/all
Having failed to highlight the insider ownership with EGL in my recent straw on them (and a few other things that Harley Grosser pointed out in his own recent Livewire Markets "wire" on EGL: https://www.livewiremarkets.com/wires/an-undervalued-small-cap-growth-story), I thought I'd kick off this LYL update with that insider ownership data, before I forget again:
Lycopodium (LYL) has HEAPS of insider ownership, so plenty of shareholder alignment:
Source: Commsec data plus Lycopodium's FY23 Annual Report and their FY23 Shareholder Report.
The Board and Management own 36% of the shares on issue, which reduces the "free float" and is a factor in why it has taken LYL so long to be included in the All Ords Index (XAO) - they were only added in March this year. They are still not in the ASX300 index.
They also don't like issuing new shares very often - in fact the shares on issuee have been stable for the past decade - as highlighted by me in green below:
As highlighted by me in blue at the bottom of that Commsec screenshot above, LYL are trading at a reasonably low PE compared with their average PE over the previous decade. Their PE Ratio was 6.5 on June 30, and it's just over 8 currently. They are NOT expensive.
However, they are relatively small, and they can be quite illiquid at times, with usually less offers on the SELL side and more bids on the BUY side, which I assume is because the majority of LYL shareholders aren't looking to sell their shares. As a result of the low liquidity and the gaps between the bids and between the offers, their share price can bounce around quite a bit on relatively small volume (of shares traded).
Screenshots taken from Commsec and added to by me.
They do pay excellent fully franked dividends, with their trailing dividend yield being over 8% (plus the value of their franking credits, so over 12% grossed up to include the full value of those FCs).
Their dividends rise along with their earnings, and their earnings have been rising - see the top of the previous screenshot above - the Earnings chart - and now take a gander at the ROE chart beside it - how's that for a services company that is involved in engineering and construction - an ROE of over 40% - and rising!!
Now - while their shares on issue haven't changed for a decade (it's been 39.7m shares every year, as shown above), they are going to be issuing a small amount of extra shares to management as share-based payments and so forth, as explained here:
Source: Page 74 of Lycopodium's FY23 Annual Report.
The company has been ASX-listed for almost two decades, mostly with the same management and Board who include the company's founders, so they have been doing this for some time, and they know what they're doing.
I found some good stuff in their recent Shareholder Report (released with their FY23 Full Year Results in August):
Above, we see that they have become diversified across Infrastructure and Industrial Processes, in addition to their traditional core sector, Resources.
Below we also see that they have diversified across geographies (Regions), however it's worth noting that Africa remains a large part of their revenue, and they remain very active in West Africa in particular.
West Africa has plenty of risks, and LYL have become impressively proficient at managing those risks, which is why they continue to specialise in West Africa, where many other industry players (who do similar work to LYL) would prefer not to work. This also means that LYL can and do charge a premium to compensate them for taking on those risks, so as long as they continue to manage those risks as they have done to date, that work will remain very profitable for them.
LYL work for some very big players like Barrick Gold Corporation - the world's second largest gold producer - LYL-Award-of-Reko-Diq-Copper-Gold-Contract.PDF [12-June-2023] as well as some very small players like the tiny (A$14.7m) Toubani Resources Inc. (TRE.asx), which is an ASX-listed and Canadian-listed gold exploration and development company primarily focused on the development of the Kobada Gold Project in Southern Mali (Toubani are HQ'd in Canada, not Australia, despite being ASX-listed) - Lycopodium-Appointed-as-Lead-Engineer-for-Kobada-DFS-Update.PDF
Lycopodium's Office Locations Globally:
Here's some of the projects they were involved in during FY23:
As you can see, most were in the Resources sector, but there were also some in Infrastructure and some in Industrial Processes. That is page 26 of their FY23 Shareholder Report, and they provide details of all of those projects on the pages listed above. I'll give you just one example - the CSL Seqirus "Banksia Flu Cell Culture Manufacturing Facility" Project - which is on page 40 of the report (as indicated above):
For details of the other projects, click on the link above to access the full report.
That'll probably do for tonight.
Pacific National, another LYL client.
Disclosure: Yep, I sure do hold LYL shares.
Rick
Great update on LYL @Bear77. I’m a fan too and have owned it IRL for a decade. I have been adding more lately on the recent dip. I think it’s one of the best mining service businesses on the ASX, if not the best. The AGM is on Tuesday. We might get another update then, but as you’ve noted previously, they rarely blow their trumpet.
Bear77
Came across some info on this mob tonight: Home - ECG Engineering (ecg-engineering.com)
Also - see: https://www.apacoutlookmag.com/company-profiles/279-ecg-engineering [09-Sep-2019]
Back in 2019 that article said that ECG had completed projects for Endeavour Mining (EDV.TSX & EDV.LSE) in Côte d’Ivoire, as well as working for Aussie gold producer Perseus Mining (PRU.asx) on its Sissingue Gold Mine.
"The company has further been involved with several gold mining projects in Burkina Faso and Senegal for the likes of Teranga Gold, SEMAFO, Nordgold and Toro Gold, among other international clients."
"That ECG has been able to execute such a solid pipeline of work in the region is testament to both its depth of expertise and willingness to face challenges," said ECG's Principle Consultant and Director Geoff Bailey, who owned and ran BEC Engineering for 18 years before it was bought out by a larger company (Cardno); in 2015 he thought it was time to set up again with other partners, once more as an electrical engineering consulting company concentrated on servicing the mining industry worldwide and predominantly in Australia and Africa, so "ECG Engineering" was born.
"We are extremely proud of some of the West African gold projects," Bailey says. "These developments pose significant hurdles around logistics, negotiation with government utilities, engagement of local employees and workers, safety of employees, work-home balance and family pressures."
"ECG has become known for taking on work that others prefer to leave. We get involved early in mining projects due to our experience with electricity grids in various African countries in particular."
"For example, ECG has modelled the electricity grids in Tanzania and Ghana and in part Burkina Faso and Côte d’Ivoire. This enables us to see the pressure points within the grids and support infrastructure that may be required to support additional new loads."
"To this end, we have worked directly with the utility in Tanzania in grid support schemes. We have experience in solar and battery storage power generation systems so can advise on a variety of power source options to our clients including grid, embedded generation and hybrid systems."
--- end of excerpt ---
That was all in 2019, so 4 years ago, however if they're still operating, and it looks like they are (they are advertising for people on Seek.com - see below), then that's another Aussie Engineering company that is not afraid to work for gold miners in West Africa. So Lycopodium (LYL) don't have the area all to themselves clearly. That said, this is the first time I've come across ECG Engineering - they assisted Capricorn Metals (CMM) with the Karlawinda build (in Western Australia) after CMM got a new Board and new management and GR Engineering Services (GRES, GNG.asx) got sidelined from the project - so I came across their (ECG's) name when doing a little reading on the history of the Karlawinda build earlier tonight. I imagine if I trawled back through PRU's announcements from 2018 and 2019 I'd likely find some reference to ECG being associated with Sissingue. Or not. Other than that, I can't find their name associated with any other ASX-listed gold miner (other than CMM) although they probably have worked for a few of them.
One thing to note however is that Geoff Bailey describes his company (ECG Engineering) as an Electrical Engineering Company, so it sounds like that's his area of expertise, i.e. NOT a full-service EPC or EPCM contractor for gold plants, but instead a company that can do things like design reliable power supply solutions in areas of the world where the local electrical grids are not very reliable.
Further Reading: https://issuu.com/outlookpublishing/docs/ecg-engineering-asia [Aug, 2019]
I can't find much that is about them lately, but apparrently, according to Seek.com, they are currently hiring people:
ECG Engineering Jobs in All Australia - SEEK
ECG is not a listed company (they are a private company) but they could still be considered to be a competitor of LYL, at least for the electrical side of things.
Another more serious competitor is Mintrex - see here: https://mintrex.com.au/projects/ and here: https://mintrex.com.au/capabilities/
ECG Engineering, Mintrex, Lycopodium (LYL.asx) and GR Engineering Services (GNG.asx) are all headquartered in Perth, Western Australia.
Mintrex, LYL and GNG all do SS (scoping studies), PFS (pre-feasibility studies) and DFS/BFS (definitive/bankable feasibility studies), so scoping studies and feasibility studies. All three also do detailed design (Engineering) work, and they all claim to also do construction and project management however I haven't seen Mintrex's name come up as being the PMs or constructors of any gold mills yet, except for Alkane Resources' 1.0 mtpa "Tomingley" Mill (in NSW) - more on that in a minute. Mintrex are certainly often involved in the studies and early engineering on a number of projects.
Mintrex will work and have worked in West Africa - the following is their Precious Metals historical work: https://mintrex.com.au/projects/?exp=precious-metals
...which has three pages worth of projects - Page 1 contains details of their involvement with KOTH (King of the Hills), Karlawinda, Sunrise Dam, Agnew Village, the Kirkalocka Process Plant upgrade and the Tropicana Optimisation project (all in WA), Page 3 contains details of their work at Nullagine and Duketon (Garden Well and Moolart Well) (again, all in WA), but page 2 has a few riskier locations:
And they also had Rosemont at Duketon (in WA) below those ones on page 2.
Interestingly, while Mintrex did the full EPCM at Tomingley (in NSW) for Alkane Resources (ALK.asx), their involvement in all of those African (and Philippines) gold projects was limited to studies (SS, PFS, DFS, BFS) and Design (Engineering) and Documentation, rather than any Construction or project Management (the C and the M of EPCM). The other three engineering companies (ECG, LYL and GNG) are definitely into the C and M, not just the EP, however GNG tend not to chase work in Africa; they appear happy to leave that to West African specialists like LYL - and possibly ECG too, if they're still active over there, but it sounds like ECG's scope is likely to be limited to just electrical engineering.
I should also mention that ALK's Tomingley is a small mill - just 1.0 (one) mtpa (million tonnes of ore per annum nameplate capacity), so perhaps when Mintrex do win EPCM contracts in Australia, it's only for relatively small projects. In precious metals anyway. I've had a check through all of those precious metals projects that Mintrex have worked on and the only one where they were awarded the full Greenfields EPCM contract was Tomingley - and there were no EPC contracts either for any gold mills anywhere, including here in Australia (for Mintrex). Plenty of E or EP work, but no C or M in Gold other than Tomingley.
That'll do for tonight - I'm just sharing this as I find it. I think it's worth trying to build up a picture of who might be nipping at the heels of a company like Lycopodium, particularly in the areas that they specialise in, being gold mills, and Africa (particularly West Africa, where most of the African gold seems to be).
Disclosure: I hold GNG & LYL. Mintrex and ECG Engineering are private companies that are not listed on any public stock exchanges.
Bear77
EOD, Tuesday 14th November 2023: Lycopodium did not disappoint at their AGM today (or indeed with their FY2023-AGM-Presentation.PDF) - I have an "Exhibit C" to add to my earlier list now:
Exhibit A: Last Year: AGM on 15-Nov-2022, share price ended the day up +4.72% (up 32 cents on the day, from $6.78 to $7.10).
Exhibit B: The Previous Year: AGM on 18-Nov-2021, share price ended the day up +7.3% (up 33 cents from $4.52 to $4.85).
Exhibit C: This Year: AGM today, 14-Nov-2023, share price ended the day up +7.68% (up 74 cents from $9.63 to $10.37).
While past performance is not a reliable indicator of future performance, or so they say, it can indeed be a decent indicator.
Shout out to @Rick for some very decent coverage of Lycopodium's AGM Presentation today - here: https://strawman.com/reports/LYL/Rick?view-straw=24526
And Rick's LYL "Val" is worth reading as well (updated today): https://strawman.com/reports/LYL/Rick
My thoughts on the company can be found here: https://strawman.com/reports/LYL/Bear77
And - along with others - also here: https://strawman.com/reports/LYL/forum
@Rick covered their innovation and diversification, as well as their outlook and their latest FY24 guidance, so I won't go over that again (it was all good!), except... and there might be a little overlap here... I will shine a spotlight on just one division of their business that doesn't often get much coverage - OMC - Orway Mineral Consultants - which was established in 1983 (so 40 years ago) with a primary focus on grinding applications within metals & minerals processing - and was instrumental in the wide acceptance of SAG milling in the Australian mining sector. So OMC was a ground breaking company that is now a global leader in minerals processing, providing the full suite of services and expertise in comminution, beneficiation and hydrometallurgy.
But First, here's a couple of slides I like to check each year - these two are from this year's AGM Presso today:
Interesting that Lithium is almost as big as gold now, not so much in terms of Projects and Studies (5&2 for lithium vs 13&13 for gold) but in terms of revenue, which I assume is because those lithium projects are a good deal bigger than those gold projects are. The bubble sizes represent revenue value.
And now for the highlights slides, with OMC mentioned on the second slide below:
[Still LOTS of African exposure there - above - Mali, Senegal, Côte d'Ivoire, Ghana, Sierra Leone, Burkina Faso, Mozambique, Namibia, Botswana... However, as we have established, they are very good at managing those risks - they've built a quite brilliant business around it in fact.]
OK, time for a small detour - there's this US-based company called Molycop - and one year ago they acquired a business called Process IQ ("PIQ"), a leading mining technology provider of proprietary data analytics and visualisation, instrumentation and advanced process control systems. PIQ also has a JV with LYL's OMC division - and that JV is called Orway IQ - which provides "world-class circuit optimisation consultancy" - Molycop's acquisition announcement (of PIQ) is below:
Source: Molycop News | Molycop
The following is from the OMC website: https://www.orway.com.au/services-optimisations-audits-due-diligence
There's some impressive results there (above) - and it's easy to see why OMC's services will remain in high demand.
For a historical perspective - on what OMC have achieved to date (in the past 40 years) - see below - and we're talking All of OMC now, not just the Optimisations section (whose historical results are shown above).
See here: https://www.orway.com.au/project-map
And OMC is just one division of Lycopodium.
What We Do | Lycopodium Limited
Our Businesses | Lycopodium Limited
Our Story | Lycopodium Limited
Disclosure: Yes, of course I do.