TORONTO (ResourceInvestor.com) -- Opta Minerals [TSX:OPM, OPM.wt] is involved in a number of businesses in industrial minerals, many of which are directly correlated to the level of activity in the resource sector.
More specifically, "Opta Minerals processes, sells and distributes abrasives and other industrial minerals to the foundry, steel and marine/bridge cleaning industries, sources specialty sands and garnets for the water filtration industry, and recycles inorganic materials." This means that they have constant, repeat customers from the oil and gas industry for instance, where offshore producers need blast cleaning of their rigs every 3-5 years. A full list of Opta products and services is available here.
The company listed on the TSX this February and does not have a very high profile with investors - shares have gone sideways to down since going public. Loewen, Ondaatje, McCutcheon the lead underwriter on Opta's IPO, however, sees quite a bright future for the company.
In a research note August 9th, Special Situations analyst Russell Stanley slapped a 12-month C$5 dollar target price on OPM, whose shares are currently changing hands at C$3.25.
Commenting on second quarter results, Stanley said, "Though these results were below our expectations for both revenues and earnings, we do expect that new product introductions and the addition of the Hillcrest facility will drive year-over-year revenue improvement going forward."
Indeed, institutional research shop LOM forecasts almost a 50% leap in revenues in 2006, and a doubling of earnings with fully diluted per share earnings estimated at 32 cents.
Not bad, and Opta President CE David Kruse commented on the Q2 numbers, "We continue to show great momentum... With the Baltimore and Hardeeville plants now operating at commercial production levels, and the start-up of the newly acquired Attica facility to be completed by mid August, revenue is expected to expand significantly in the second half of 2005." The company is prepared for this expansion with more than C$9 million in the treasury at present.
This is a proposition that has some exposure to parts of the resource sector, is a service provider to the resource sector, but also caters to other industries, some of which are cyclical. As oil and gas producers see their valuations skyrocket and investors struggle to pinpoint future commodity prices, the underlying commodity producers still come back to the service firms for routine, necessary work. For that reason, not just Opta but many other service companies are worth a second look as they may represent value, and be due for a re-rating themselves when investors decide to move down the food chain in the face of exploding multiples for the producers.
Of note for resource sector players, small cap investors and speculators of all stripes is the Opta Minerals warrant series, presently trading at 30 cents, which allows the warrant-holder to purchase a share of the company at $5 until February 17, 2007. This could add leverage to what already looks to be a quite promising situation, if management and analysts are on the mark in their growth and earnings forecasts.