Saturday, September 30th 2023

Fox Marble Holdings PLC

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This could really be Fantastic for Mr Fox


“…With a current market cap of around £6m Fox Marble is claiming for damages of more than €195m to compensate for the cost of its development of the quarry and lost revenues…”


Fox Marble (AIM:FOX), the only quarrying, stone processing and dimension stone marketing company listed on AIM, is working to carve out a block of the expanding global marble market, navigating a return to growth after a challenging 2020 and an ongoing legal dispute regarding access to one of its quarries. The steps the company is taking to resolve both challenges could propel it forward in 2021.

Since listing on AIM in 2012 Fox has acquired the Cervenillë, Syriganë and Malishevë quarries in Kosovo, and Prilep in North Macedonia, collectively producing nine kinds of stone. Prilep has been called the ‘Carrara of the Balkans’ for the quality of its white marble: Carrara in Tuscany is celebrated for the purity of the stone used for many of the great buildings, monuments and sculptures of ancient Rome and the Renaissance, including the Pantheon and Michelangelo’s David. The company’s Kosovan quarries produce a variety of greys and colours including Alexandrian Blue, Breccia Paradisea, Etruscan gold and Grigio Argento.

The stone blocks, each weighing up to 25 tonnes, produced from the company’s quarries are excavated by precision drilling and cutting that creates stone ‘benches’, the giant steps that characterise the neatly stepped appearance of dimension stone quarries. It’s a painstaking business. The best quality stone, free of cracks and holes, is encountered some way below the surface. But Fox stockpiles the better near surface stone for sale as tiles, gravel and powder. The uniform blocks exported from the quarry are cut to order at the company’s factory in Kosovo, located close to the motorway that connects Kosovo and Albania with access to the port of Durrës.

Growing Asian demand


Fox’s marble is used for everything from town plazas, hotels and office developments, to bathrooms and kitchens for homes. The company serves a global marble market that is expected to grow by 6pc and reach $93.7bn over next 10 years. As with so many other sectors of the global economy demand is being driven by rapid development in the Asia Pacific region, which already accounts for a third of market share.

As sensitivities regarding the environmental cost of excavating and selling marble have increased various substitute materials have emerged. Slab marble is undoubtedly resource intensive: for every slab of precious marble in a kitchen, an equal or greater amount of off-cut marble is left in a landfill. And it is expensive to ship.

But though the industry will certainly have to continue to work to improve sustainability though more efficient transportation and greater use of off-cuts, marble retains its ancient appeal, valued for its unique qualities, each slab set apart from others by its particular texture and patterning of veins, the streaks of colour that wind their way through the metamorphic stone caused by thousands of years of geological pressure. As ever there is particular demand for white marble, which Fox’s assets are well placed to help meet.

Challenges and opportunities


The company’s most recent operating update, published on 16 February, crystallised the challenges and opportunities Fox faces in taking advantage of the expanding market.

The company has work to do to rebuild sales after demand was hit hard by the pandemic. Fox’s block marble sales fell significantly in 2020 from €1.2m in 2019 to €0.1m, with global travel restrictions severely limiting international trade, and Asian demand falling off. The company moved to cut costs and protect operational cash flow by scaling back quarry production from 14,515 tonnes in 2019 to 6,060 tonnes.

But with the Chinese economy close to full throttle again, and international travel restrictions gradually easing, Fox expects to soon be able to report increasing sales. The company restarted production at its North Macedonian quarry last August, and sales of its processed marble actually increased last year to €0.6m from €0.2m in 2019, €0.45 million of that growth occurring in H2 2020, indicating increasing momentum.

Fox has been able to report several new contracts, including agreements to supply up to 40,000 square metres of paving for two city squares in Kosovo, worth more than of €1.5m, and an order for 35,000 square metres of cut and polished tiles for apartments throughout the Balkans, worth more than €700,000. Last summer the company upgraded its capacity to cut tiles allowing it to process 300pc more than in 2019.

The same update announced that legal giant Denton’s will represent the company in its legal dispute with the Kosovan government. Fox began arbitration proceedings in 2019, alleging the government had failed to protect the licence the company had secured to develop the Maleshevë quarry. With extensive reserves of silver marble, Maleshevë, acquired five years ago, soon became the company’s most productive quarry. But when, as Fox contends, the licence’s previous owner reneged on the sales agreement, and the Kosovan state declined to confirm the transfer of ownership, Fox was obliged to suspend production.

Fox is claiming for damages of more than €195m to compensate for the cost of its development of the quarry and lost revenues. Significantly, the company has secured a no-win no-fee agreement with Denton’s and it has concluded a £1.05m fundraise to cover all costs that might be incurred in the course of the arbitration process. Fox’s cash balance as at 15 September 2020 was €0.47m, and net debt for 2019 was €2.5m.

Prospects for 2021


Fox Marble seems to have taken robust steps to put the foundations in place for recovery in 2021. Sales are picking up and the recruitment of a strong legal team augurs well for a satisfactory resolution of the dispute over its valuable Maleshevë quarry.

The company’s share price has been hovering around the 2p zone for some time now, leaving its market cap at around £6m. It’s worth bearing in mind that three years ago it was up at 10p. Investors looking for relatively unsung cyclical stocks might want to keep an eye on Fox’s news flow over the next few months for sales and legal developments that could push that price up significantly.