Founded in 2011 by Christopher Gilbert (a former record label entrepreneur) and Dr Etrur Albani (an electronics engineer) Fox Marble is taking advantage of the unexploited marble reserves in Kosovo, South Eastern Europe. “But what’s the attraction in a collection of marble quarries backed by an engineer and a music guy” I hear you ask?
Well my interest was caught because Fox has been on the journey to production since 2011 and was floated on AIM in 2012 at 20p. Since then it has made good progress and recently made its first shipments of marble, first sales, first repeat orders, and first invoicing. The share price has fluctuated around the 20p mark, dipping to 15p at one point, but is back at 20p. The market cap sits at £25m, only just ahead of its float value. If recent sales can be built upon and cash flow begins to crystallise then I would hope to see a rise in the share price from here.
Background:
Historically Kosovo has a proven track record in supplying stone for fine buildings around the world. Marble from Kosovo was used in St Peter’s Basilica in Rome and one of the very same quarries that Fox now operate previously supplied marble for the White House.
The company acquired rights and licenses to five quarries (in 3 locations) covering 488 hectares and listed on AIM in August 2012, raising c.£9m, to be used to equip and operate these quarries and build a processing plant to polish and finish the stone. The quarries are now equipped and either producing or moving to production, and the processing plant site has been bought, planning permission granted, and is due to be built this year in order to align the main cost with the growth in sales. Fox has since acquired a licence for another quarry and operating agreements for a further two.
In total Fox’s quarries contain over 300 million cubic metres of premium quality marble and decorative stone, 91.3 million of which is currently classified as reserves. Their maiden JORC resource implies an in situ valuation of €16.5 billion!
Currently the rough mined product is being sent to Italy for cutting and preparing into saleable blocks. The plan is to construct their own processing facility in Kosovo to allow Fox to refine the product themselves thus commanding a higher price and margin. The overall ambition is to establish itself as the leader in decorative stone from Kosovo and South Eastern Europe.
The Board
On face value a record industry mogul and electronics engineer might not be an obvious pair to head up a marble quarrying company. Digging a bit deeper however, the board have a solid track record in value creation and also hold a significant number of shares in the company - something that I like to see. A quick overview of some of the members is as follows:
Andrew Allner: Non-Exec Chairman
Andrew holds a number of Chairman / non exec Chairman / NED positions across a range of companies including the Go-Ahead Group, CSR Plc, Northgate Plc and AZ Electronic Materials SA. The one that caught my eye was that he is also Non-Exec Chairman for Marshalls Plc, a significant player in the decorative stone industry. He has previously held numerous senior positions across companies such as Moss Bros, RHM Plc, Amersham International Plc, Guinness Plc, and was a Partner at PWC.
Christopher Gilbert: CEO
In 1992, Chris co-founded Infectious Records which grew to be a very successful UK independent and was sold to Rupert Murdoch in 1999. He then founded technology and satellite transmission companies with major blue chip clients. In 2005, he co-founded Crosstown Songs, a music publishing venture which became a major independent and was sold to KKR / Bertelsmann in 2009.
Dr Etrur Albani: Managing Director
Etrur has a working knowledge of Kosovo. He developed his career at PTK, the Kosovo national telecoms company, where he became MD. He increased the number of subscribers by 40% and profit by 85% by developing the infrastructure according to developed world standards. He gained his Ph.D. from London South Bank University, following a Bachelor of Electronic Engineering from North London University.
Roy Harrison OBE: Non-Executive Director
A former Chief Exec of Tarmac Plc, Roy completed the sale of Tarmac to Anglo American Mining in 2000. He is currently the Chairman of Renew Holdings Plc and also acts as a consultant to Arriven, a private partnership, advising and investing in the UK building materials sector. Previously he was a Senior Independent Director of the BSS Group Plc.
Dr Paul Jourdan: Non-Exec Director
Dr Paul is CEO of Amati Global Investors Limited, a fund management company based in the UK. He has been involved in managing equity funds for 14 years and founded Amati Global Investors with Douglas Lawson in 2010. His fund holds almost 5% of the share capital in Fox Marble.
Significant Shareholders
I think it’s important to see board members owning decent wedges of their company and in this area Fox doesn’t disappoint. The founders, Dr Albani and Mr Gilbert hold between them 35% of the total share capital of Fox. Three other directors hold smaller amounts, 2 of whom increased their holdings last August as part of a modest fund raising which incidentally was made at a premium to the share price at the time. In total around 60% of the share capital is held by directors or large institutions as follows:
|
|
Holding
|
%
|
|
Dr Etrur Albani
|
20,757,500
|
17.49%
|
|
Mt Christopher Gilbert
|
20,306,250
|
17.11%
|
|
Mr Dominic RN Redfern
|
10,650,000
|
8.97%
|
|
Majedie Asset Management
|
7,500,00
|
6.32%
|
|
Standard Life Investments
|
6,060,606
|
5.11%
|
|
Amati Global Investors
|
5,300,000
|
4.47%
|
Recent operational progress:
The processing plant development in Kosovo was due to be completed early in 2014, but they recently confirmed that the plan is to develop this in parallel with, and dependent on, sales and order growth in order to protect risk to capital (my assumptions based on their statements) and also as they can continue to take advantage of unused capacity in the Italian factories which they currently use to process their rough product. This could be seen as a negative as delays Fox’s in house capability, but I accepted it as prudent cash management ahead of sales growth. But that’s only my opinion. The processing plant is therefore due to be completed during 2014 and will increase gross margin and production capacity.
At the end of November cash reserves stood at €5.7m so they seem to be reasonably well funded for 2014 and as already mentioned sales revenue this year should see them cash neutral, if not positive. My expectation is that they will therefore complete the processing factory without further dilution or fund raising.
Let’s not forget the risks though!
Summary
I stumbled across Fox Marble and on further investigation liked what I saw and have taken a stake at 20p. I like the fact that they floated at 20p, have spent cash wisely investing in quarrying equipment and making good progress, and yet are still priced at 20p (albeit a slight increase in shares in issue). I like the fact that this doesn't have a massive PI following and isn't the latest hot topic on the boards. I like 60% of shares being with longer term holders and that the co-founders own 35%. I like the fact that they are now building sales through established channels but that this is still in its infancy, offering the potential for some serious revenue growth and profitability over the coming year(s). And finally I like the fact that this isn't an oil and gas E&P company and therefore adds some diversification to my portfolio.
To be balanced I don’t like the fact that Fox only hold licences and that there have been challenges with this in 2011. I don’t like it that sales could take longer to grow than anticipated or that severe winters can halt operations. But on balance I see more chance of medium term success than failure and have taken the stake to hold throughout 2014 and see where sales have got to by the end of this year.
As ever please do your own research and make your own decisions based on your own comfort with risk and investment.
Additional coverage:
Four quarries are now operational and the first sales of marble were made towards the end of 2013. The December statement ahead of year end results (due in March) highlighted €500,000 worth of marble orders with the first repeat orders coming from their new sales agents with €100,000 worth of sales invoiced at this point.
A distribution agreement for the USA has been agreed and the first shipments of 300 square metres of cut and polished product has been shipped for sale. See Agents Twitter account of received product here. An agent in China has been appointed, two in Italy, and a strategic partnership with Pisani (an established leading wholesaler in the UK) is in place from which they took their first orders recently following an open day and launch. See Facebook launch event here
Recent quarrying work has seen marble similar to “Calacatta Gold” discovered, a rare premium marble found only on the Italian coast. As winter set in blocks were shipped from the fully operational quarries in Rahovec (quarries A and B) and Suhogerll. A total of 200 tonnes of various types of marble has been shipped to a processing facility in Italy for cutting and polishing for onward supply during 2014. In early 2014 Fox will also commence production of marble in commercial quantities in Malesheva and has also commenced operations in Macedonia a “white Sivec” marble quarry, which is also expected to produce commercial quantities this spring. The production operation genuinely seems to be moving from ambition to reality.
The processing plant development in Kosovo was due to be completed early in 2014, but they recently confirmed that the plan is to develop this in parallel with, and dependent on, sales and order growth in order to protect risk to capital (my assumptions based on their statements) and also as they can continue to take advantage of unused capacity in the Italian factories which they currently use to process their rough product. This could be seen as a negative as delays Fox’s in house capability, but I accepted it as prudent cash management ahead of sales growth. But that’s only my opinion. The processing plant is therefore due to be completed during 2014 and will increase gross margin and production capacity.
At the end of November cash reserves stood at €5.7m so they seem to be reasonably well funded for 2014 and as already mentioned sales revenue this year should see them cash neutral, if not positive. My expectation is that they will therefore complete the processing factory without further dilution or fund raising.
Let’s not forget the risks though!
- Kosovo is not Cornwall and so it is worth remembering that there is a risk of operations being hampered or disrupted by politics or economics or other such risk. To prove this point at the end of 2011 local officials annulled 3 of Fox’s 4 mining licences with no prior warning. This seems to have been local corruption rather than official state interference and Fox immediately set about challenging this action and succeeded in getting their licenses back. But it does go to show the risks here.
- Another challenge is that harsh winters in Kosovo can halt or disrupt quarrying operations and whilst this winter hasn't been as severe as sometimes, there is the ongoing risk of disruption each winter. That said, as pointed out in the December update, Fox have already shipped 200 tonnes of marble to Italy to be finished and to provide supply over this winters worst weather.
- Funding seems to be in a good place, but never say never. Funds were raised in the summer last year and was well supported and subscribed at over the share price at the time. Fox still have €5.7m in the bank at the end of November and most of the equipment for the quarries seems to have been bought. The processing plant needs to be paid for, but as stated this is planned to be built in parallel with sales growth. So whilst I am not expecting a fund raising I just flag that this is still a small company with modest resources.
- Sales are growing and product is being shipped to agents and distributors around the world. This doesn't mean that cash is flowing in, just yet, and there is always a chance that sales don’t build as quickly as hoped, pushing back break even.
Summary
I stumbled across Fox Marble and on further investigation liked what I saw and have taken a stake at 20p. I like the fact that they floated at 20p, have spent cash wisely investing in quarrying equipment and making good progress, and yet are still priced at 20p (albeit a slight increase in shares in issue). I like the fact that this doesn't have a massive PI following and isn't the latest hot topic on the boards. I like 60% of shares being with longer term holders and that the co-founders own 35%. I like the fact that they are now building sales through established channels but that this is still in its infancy, offering the potential for some serious revenue growth and profitability over the coming year(s). And finally I like the fact that this isn't an oil and gas E&P company and therefore adds some diversification to my portfolio.
To be balanced I don’t like the fact that Fox only hold licences and that there have been challenges with this in 2011. I don’t like it that sales could take longer to grow than anticipated or that severe winters can halt operations. But on balance I see more chance of medium term success than failure and have taken the stake to hold throughout 2014 and see where sales have got to by the end of this year.
As ever please do your own research and make your own decisions based on your own comfort with risk and investment.
Additional coverage:
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