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In the Spotlight: XRF Scientific Ltd (ASX: XRF)
Key Takeaways
- Global Market Dominance: XRF Scientific commands over 50% of the global "fusion flux" market, a critical chemical component for mineral analysis.
- Founder-Led Continuity: Founder David Brown, now 86, remains an active mentor, ensuring decades of expertise remain at the core of the business.
- High Insider Ownership: Management and directors hold 13% of the company, aligning their interests with long-term shareholder value.
- Strategic Growth: The 100% acquisition of Orbis Mining allows XRF to expand significantly into the gold analysis sector.
- Resilient Financials: The company recently reported a 16% growth in net profit, driven by diversified revenue streams beyond the resources sector.
In 1972, a 34-year-old Perth scientist named David Brown pioneered the commercial development of what is known as X-ray “fusion flux”. This is a critical component for an analytical technique known as X-ray fluorescence, used to determine the elemental composition of materials.
Brown’s technology was soon adopted by the CSIRO for the development of minerals testing processes, building the foundations for a firm aptly named XRF Scientific Ltd that listed on the Australian Stock Exchange in 2006. Back then, the issue price for ASX: XRF shares was a mere 20 cents; today, they have appreciated significantly to over $1.50, rewarding those who understand the value of investing in high-quality industrial stocks.
The Foundation of XRF Scientific: David Brown’s Legacy
The now 86-year-old Brown, who owns 6.5 per cent of XRF and is a non-executive director of the company, still comes into its head office in the Perth industrial suburb of Osborne Park every day. Brown is an advisor, mentor, and most importantly, an inspiration to XRF chief executive Vance Stazzonelli.
“He is incredibly sharp mentally and physically. He is one of those guys that you would probably mistake for someone in his early 70’s,” Stazzonelli says. “He's got a wealth of knowledge and decades of experience. He's seen every single sort of economic circumstance that could have arisen in the last four or five decades. So he's incredible in terms of his contribution to the company.”
For many years, Brown was the general manager of XRF’s flagship consumables division, which makes the cutting-edge chemicals XRF manufactures. Today, this division commands an impressive 50+ per cent of the global fusion flux market. XRF sells product directly to large Australian iron ore and base metal miners for their own internal laboratories to test mineral samples, while also maintaining a robust distribution network into Europe and North America.
Leadership and the "Skin in the Game" Advantage
Fourteen years ago, Brown’s son Jeff took over the chemicals division, adding an important family dynamic to the XRF business. This continuity is a hallmark of successful founder-led companies that prioritise long-term stability over short-term spikes.
“David and Jeff are two individuals who are highly passionate about the chemicals they produce and are well known in the industry. They have the ultimate customer focus,” Stazzonelli says. “In terms of his position on the board, David always puts on the right cap at the right time and he has a very large alignment with shareholders, being a big shareholder himself.”
Importantly, 13 per cent of XRF’s shares are held by the directors and key management personnel, including Stazzonelli. “To me, it's the number one consideration. I think it's absolutely critical. Because I think once you've got significant skin in the game and if it's a significant part of your overall wealth, it just changes your decision making process,” he notes.
Diversification and International Growth Strategy
Stazzonelli, an accountant by training, joined XRF as Chief Financial Officer in 2009 before stepping into the CEO role. He was drawn by the rare sight of a profitable, dividend-paying manufacturing company working in Australia. Today, XRF’s consumables, precious metals, and capital equipment divisions export more than 50 per cent of their production to over 80 countries.
In its recent annual results, XRF reported net profit growth of 16%. Strong capital sales and diverse revenue streams—with 30 per cent of earnings coming from non-resource industries like industrial testing—helped offset a weaker performance in precious metals.
Gold Analysis and the Orbis Mining Acquisition
Stazzonelli remains optimistic about future opportunities for commodity diversification. “We see gold analysis as a quite a strong potential growth market. We didn’t previously have much exposure to the gold industry, but we have that now through the Orbis crusher business,” he says.
By exercising the option to purchase the remaining 50% of Orbis Mining, XRF has solidified its position in the gold sector. While already dominant in Australian commercial laboratories, the company sees significant growth potential in overseas gold markets.
Navigating Supply Chain Volatility
The volatile lithium price has presented challenges, as the mineral is a core input for XRF's chemical manufacturing, and lithium miners are also key customers. “Our production costs increased as lithium prices went up, so we had to pass on those increases... now, as the prices have been coming off, we've got a job of maintaining our profits while ensuring customers are looked after,” Stazzonelli explains.
The Future of XRF: Innovation and Global Expansion
Going forward, the focus will remain on smaller bolt-on merger and acquisition opportunities and a constant research and development pipeline. This includes new machines, consumables, and precious metals products mapped out for years ahead.
Ultimately, Stazzonelli says the "secret sauce" of XRF has been its people. Retaining a management team that has been together for 15 years remains the best advice he ever received from David Brown. For investors looking for a deep dive into company fundamentals like these, our latest equity research provides further clarity on the industrial sector.
“He has always believed that people are the most important part of any business,” Stazzonelli says. “If you look after your people and retain those good people over the long term, that will drive shareholder value.”
Identifying high-performance industrial companies requires a keen eye for both technical dominance and leadership integrity. If you are interested in exploring how companies like XRF Scientific fit into your long-term strategy, we are here to guide you.
Contact a Morgans adviser today to discuss your share portfolio or find a local branch to speak with our team.
About the Company
XRF Scientific Ltd (ASX: XRF)
XRF Scientific Limited manufactures and markets precious metal products, specialized chemicals, and instruments for the scientific, analytical, construction material, and mining industries in Australia, Canada, and Europe. The company operates through Capital Equipment, Precious Metals, and Consumables segments. The Capital Equipment segment manufactures automated fusion equipment, high temperature test, production furnaces, and laboratory jaw crushers, as well as general laboratory equipment. The Precious Metals segment manufactures products for the laboratory and platinum alloy markets. The Consumables segment manufactures chemicals and other supplies for analytical laboratories. XRF Scientific Limited was founded in 1972 and is based in Osborne Park, Australia.
XRF By The Numbers
- Share Price: $1.43
- Market Capitalisation: $199,473,421
- Historical Dividend Yield: 2.31%
*** Financials as at close of market 9/9/2024
Board & Management
- Fred Grimwade (Non-Executive Chairman)
- Mr Vance Stazzonelli (Managing Director)
- David Kiggins (Non-Executive Director)
- David Brown (Non-Executive Director)
Frequently Asked Questions
What does XRF Scientific Ltd actually do?
XRF Scientific manufactures and markets chemicals (fusion flux), precious metal products (platinum labware), and capital equipment used by miners and industrial laboratories to test the composition of materials.
Why is "fusion flux" important in mining?
Fusion flux is used to dissolve mineral samples into a glass-like disc. This allows X-ray fluorescence (XRF) machines to accurately measure the chemical elements in the sample without "matrix effects" interfering with the results.
How has ASX: XRF performed since its listing?
Since listing in 2006 at 20 cents per share, the company has grown significantly, reflecting its expansion into global markets and its dominant 50% share of the worldwide fusion flux market.
What is the significance of the Orbis Mining acquisition?
The acquisition allows XRF to expand into the gold analysis market. Orbis manufactures laboratory crushers that are essential for preparing gold samples, a sector where XRF previously had limited exposure.
Why does management ownership matter for investors?
With 13% of shares held by directors and management, XRF has high "skin in the game." This generally ensures that leadership makes decisions focused on long-term shareholder wealth rather than short-term gains.
How does XRF Scientific handle lithium price volatility?
As lithium is both a manufacturing input and a sector they service, the company adjusts its pricing sensitively to maintain margins while supporting its customer base during market fluctuations.
Does XRF Scientific pay dividends?
Yes, XRF has a history of paying dividends to shareholders. For the most up-to-date yield and payment dates, you can view our current stock reports.
Where can I find advice on investing in ASX: XRF?
It is important to consider how a stock fits within your overall portfolio. You can find a Morgans financial advisor to discuss your specific investment goals and risk tolerance.
