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Saturday, February 16, 2013

The Semirara Mining Accident

The west wall of Semirara Mining Corp.'s Panian pit collapsed last Feb. 13. As of 5 pm of Feb. 14, 5 miners are already confirmed dead, 5 still missing and 3 rescued alive. The authorities are still investigating the cause of the incident, but incessant rains is one of the possible reasons being looked at.

Semirara (PSE:SCC) is the biggest and only large-scale coal producer in the Philippines and is owned by the Consunji group, which has stakes in construction (via DMCI Holdings), utilities (Maynilad Water), toll roads, real estate, and power, among others.

This is the third mining related-accident reported in the last six months.

Last August, one of the tailings pond of Philex Mining Corporation's Padcal mine in Benguet province broke, spilling waste into the nearby Balog creek, which flows into the Agno River and the San Roque dam. Philex blamed incessant rains for the accident. Three months later, silt spilled from the Toronto mine of Citinickel Mines and Development Corp. in Narra, Palawan. The waste flowed into a river and irrigation canals affecting farms and a fish pond.

The Mines and Geosciences Bureau fined Philex and Citinickel for the mine spills, claiming both were negligent in their operations. The two companies were asked to clean up and rehabilitate affected waterways.

Citinickel is a subsidiary of Oriental Peninsula Resources Group Inc.

Philex, Citinickel's parent company Oriental Peninsula, Semirara are publicly traded companies.

Immediate Effect

Semirara’s stock price plunged two days after the news of the mine accident went public. From its close of P257.8 last Feb 13, it has gone down by 10.24% or P26.40 per share to close at P231.40 Friday. DMCI Holdings which has stakes in Semirara also suffered, decreasing by 4.39%.

What to Do?

The answers to following questions will be the key on knowing what moves to make:
1. How much will it affect the earnings prospect of the company?
2. For how long will it take to rehabilitate and eventually start operations?

There is an opportunity to take advantage and buy cheap because of the negative news, but expect the stock to be very volatile especially when investigations are still ongoing.

Patience will be the key to making the right decision. In Philex Mining's case, the stock was trading at around P24-25 per share before the Padcal leak incident. It dipped to P20 after the news came out, but still managed to rise to P23 about two weeks after. When it became clear the PX will be facing a serious fine and it would take until 2Q13 to complete the rehabilitation and for Padcal to be fully operational, the stock dipped to P14 per share in October. Then the government imposed a P1 billion fine and PX shares bottomed at P12.52 early December. That was the point when the stock was just too cheap to ignore. As of Friday, PX stocks closed at P18.50 per share.

It has not fully recovered, but Philex had gained ground by showing it is resilient to adversity. They took responsibility from the implications of the incident. No one can really say what will happen to Semirara, but it is imperative that the management show decisive measures in handling the incident.

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