ATR 0.00% 19.0¢ astron corporation limited

astronomical performance

  1. 4,756 Posts.

    Astronomical . . . and the one that got away
    By Alan Kohler
    July 1, 2004

    The best performing stock, by a mile, on the Australian market in the financial year that ended yesterday was Astron. Its shares went from 23¢ on July 1 to $2.70 on June 30 - up 12-fold. If there was a better performer, I would love to hear about it.

    In some ways, Astron looks a pretty boring company. It makes zircon and zirconium products for the ceramics industry and TV screens, as well as optical coatings. It just happens to do this in China.

    A few Australian listed companies operate entirely or mostly in the US (one fewer soon when News Corp departs) but Astron looks to be the only one that operates in China.

    It was started by Kiwi Australian Alex Brown, 63, who runs the company from Shenyang in northern China with his wife, Kang Rong, a chemical engineer.

    Brown is chairman and managing director, she is executive director and vice-general manager.

    The Browns are worth $109 million, up from $10 million or so a year ago. They own 70 per cent of the company, which is capitalised at $155 million, and plan to expand its manufacturing and mining operations and list in London on the alternative investment market, as well as in Shanghai perhaps.

    And if you think that having risen 12-fold in a year the share price must be due for a correction, think again. It is selling on a price-earnings ratio of 12.9 times earnings.

    Profit has been growing at an annual rate of 25 per cent for five years and clearly has potential to grow much further.

    And with the P/E ratio 17 per cent below the Australian market average, there is plenty of room for the market to re-rate it further, especially if the company lists in London.

    After kicking oneself around the room for not selling the house and loading up with Astron shares at 25¢ a year ago, it is tempting to regard Alex Brown as some kind of business genius.

    But he is not really. He is a restless but careful entrepreneur, methodical, a very good manufacturer, a bit of a visionary perhaps, and more than a bit lucky.

    Brown was born in Napier, New Zealand, and did agricultural science at university before moving to Western Australia to work as a farm consultant.

    Before long he fell in with the goldmining scene and with a couple of mates helped develop the Horseshoe Lights mine near Meekatharra, which was eventually floated and then sold to Barrack Mining.

    He then bought some assets out of the Gollin liquidation, including the Gunnedah coalmine, which he expanded and sold.

    Then Alex Brown's feet got itchy again and a friend told him there was an interesting mineral sand prospect on Hainan Island, off southern China. So in the late 1980s it was off to China looking for mineral sands on Hainan.

    Using a shell company named Astron Resources, Brown arranged the Chinese Government's second joint venture, but it did not work. In 1993 the venture was dissolved - after it became China's biggest producer of zirconium chemicals.

    Then he tried again, this time bringing the zircon from Australia, and then exporting the chemicals.

    In 1996 he set up a factory in Shandong and started making the stuff. Now Astron has three plants making various zirconium products and a series of distribution centres around China, as well as one in London.

    Sixty per cent of the product is sold into the Italian ceramics industry, but Brown says the uses of zircon chemicals are expanding every day.

    When he spoke to me from Shenyang yesterday, he was full of plans for Astron's recently acquired mine - the world's largest zircon mineral sands deposit near Horsham. Astron bought the deposit last year via an all-scrip takeover of Zirtanium Ltd. Brown is even talking about moving the company's operational base to Australia. The Horsham deposit has the capacity to be world's biggest producer of mineral sands, says Brown, but the first thing Astron must do is get into the titanium oxide (paint pigment) business to use all of the output - not just the zircon.

    On the subject of China and its prospects, Brown reckons it will be a soft landing.

    "The key is what happens to foreign investment, and at this stage there is absolutely no sign of it drying up," he says.

    He says three parts of the Chinese economy got out of control: government expenditure on infrastructure, major industrial expansion (especially steel) and real estate.

    The Government has largely controlled each of these - not through monetary policy, but by simply and directly choking off the supply of capital to those sectors out of control.

    A legacy of brutal central planning does have some advantages.

    Declaration of interest: the author unfortunately holds not a single share in Astron Ltd. Bugger.


    My charts tell me that ATR closed at $2.68 yesterday.

    I don't hold any either unfortunately.


    Fig Jam
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