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SHARES RATING

Asia Resources 1 (low)-5 (high)

Management: 3

Market: 3

Product: 4

Financial strength: 3

TOTAL SCORE 13/20

With gold forecast to break the $1,000 per ounce level this year, it should come as no surprise to see businesses trying to find new ways of getting a foot on to the precious metal market.

Strong gold prices have made mothballed mines economical to reopen, as displayed by Central Rand Gold (CRND) which is reviving a large deposit in South Africa. Entrepreneurs like Goldplat (GDP:AIM) have even made a solid business by recovering gold from mining waste, also in South Africa.

The natural extension to this chain of developments is to reprocess scrap gold into bullion, which is the new business model of Asia Resources, which will relist on Aim next Tuesday (29 January), having first joined the junior market as a cash shell in September 2006.

It has spent the past six months firming up a reverse takeover of LSJ, a Malaysian company that produces gold bars from scrap metal. The £12 million deal is being funded by the issue of new shares. Asia Resources plans to use LSJ’s income to help fund investments in gold-related projects and companies in Africa, Asia and Europe.

LSJ started life in 1992 as a jewellery company, selling its own and third party products. High working capital pressures of operating in the wholesale market forced LSJ to seek additional revenue stream. A venture into the high volume, low margin business of making bullion from scrap gold proved so successful that by 2006 it accounted for 98% of revenue.

The company obtains scrap gold from metal wholesalers, agents, mines and retail outlets. The gold is treated to make non-standard gold bars which are then sold to customers including banks and jewellery makers.

As LSJ is not a member of the London Bullion Market Association, it can’t put the recognised purity certification stamp on its gold bars. The company claims it is already known for selling good quality products.

Asia Resources plans to increase bullion production volume by buying more Malaysian scrap gold and setting up international trading offices to market products. It will also expand jewellery production.

LSJ has been profitable since 1993. It made £1.9 million pre-tax profit in 2006, a 43% rise on the previous year. However, its most recently published results, which cover the first half of 2007, show a 40% drop in interim pre-tax profit to £740,000 on higher administration expenses.

The company is also chasing £635,000 worth of unpaid bills. If it can’t recover the money, it said it would pursue a warranty claim.

LSJ executive director Leong Peng Hoong will become CEO of the enlarged company. He will own 47.5% of the £16.4 million business.

The company believes the Malaysian bullion market is worth around £925 million and the jewellery market valued at around £355 million. Both are forecast to grow at between 3-5% per year for the next three years.