new research report, page-7

To all,

As promised.

This report was made by a wholesale broker which is then provided to retail brokers for a fee. It's thorough and a good reflection of the project. Much of the report gives a background, areas that I have covered for you all. Now there is no price target or a recommendation to buy, hold or sell, they leave that to the retail brokers. I also think they gone a little light on the numbers.

Regards
Pep

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Industrial Minerals Corporation Ltd ("IDM") has commenced product shipments from its high-grade, low cost mineral sands project. With demand high and supply tight, IDM has successfully pre-sold its 2011 chromite production at a premium to market prices. We are expecting accumulated cash flows within a range of US$90M to US$168M for the first three years of production giving IDM shareholders significant upside in the near term.

Projected EBITDA first year between US$23M to US$42M, second year between US$32 to US$61M and third year between US$34M to US$64M.

Ongoing exploration within IDM's existing leases should expand the current 10-year life of mine by 10 to 20 years. Additionally, IDM is currently negotiating for leases within contiguous areas that would increase the total life of mine up to 40 years or more. The company expects to finalise one or more new leases within the next 12 months.

Industry barriers to entry will keep supply tight and prices high over the next five to seven years.

The first year of mining will focus on surface deposits with no over burden, and the life of mine strip ratio of 1.2. No blasting or crushing is required and mining costs are low at US$22-26 per tonne of mined ore.

Base Case financial analysis assumes a mine throughput of 607,000 per annum, yielding 100,500 tonnes of heavy minerals, increasing to 671,500 per annum by year three, yielding 116,600 tonnes of heavy minerals. Mine gate prices for chromite and zircon start at $500 and $2000, respectively and move up to $600 and $2200 in year two, remaining flat thereafter. These increases in the prices of chromite and zircon in year two reflect current prices, not price increases, as year one production was pre-sold before prices increased. High-iron ilmenite prices are fixed at $235 for three years.

Upside Potential scenario assumes mine throughput of 773,963 in year one increasing to 868,000 by year three, still well below plant capacity of 1.5mtpa. With zircon prices increasing by 20% in year three, and all other prices equivalent to the Base Case, we forecast year three revenues of US$83M and EBITDA of US$64M. Under either scenario, IDM has excess plant capacity, so production could be increased. Given the current demand/supply dynamics, price increases for both chromite and zircon are a realistic possibility. IDM appears poised to become a cash generation machine under either our Base Case or Upside Potential scenario.

The mine's heavy mineral grade of 22.5% is four or more times that of its ASX listed competitors. This high-grade translates to a high ratio of salable product to mined ore and dramatically reduced costs.

IDM expects additional savings due to a US government initiative to stimulate capital investment that will allow IDM to write off, for tax purposes, almost the entire cost of the processing plant that has been classified as equipment.

The average PE ratio of ASX 200 listed mining companies is 16, meaning that IDM, at a PE of 5.6, is trading at a substantial discount. We expects IDM to trade at a significantly higher multiple over the next few months now that production and cashflow generation is commencing.

IDM has a capital payback period of less than three years and should be able to stockpile cash to fund upcoming exploration and expansion without the need to tap equity or debt markets for additional funds.

IDM's plant design allows for up to three additional product lines with a capital investment of less than US$2.5M. Existing deposits contain economic resources of Kyanite, Staurolite, Sillimanite and Epidote. The addition of one or more of these products would significantly boost revenues without raising operating expenses materially. IDM has plenty of excess plant capacity to utilise in increasing production.

IDM's planned incorporation, subject to permitting, of a first stage separation (rougher spirals) in the field would enable an improvement in the amount of heavy minerals hauled, further reducing costs and improving margins.

The driving factor for both chromite and zircon demand is China's rapid urbanisation. The demand-supply imbalance is only expected to tighten as China's steel production is forecast to increase between 11% and 25% a year for the next four years.

While current suppliers are expected to ramp up production, infrastructure constraints in South Africa and Australia will prevent a short-term response to higher pricing. New projects face numerous barriers to entry including environmental hurdles, lengthy permitting procedures, inadequate infrastructure and the time required to ramp up new production. As a result, supply will be unable to match demand over the next five years.

Both chromite and zircon prices are forecast to rise for the next five years as supply is unable to adjust to increasing demand. As chromite and zircon represent over 70% of IDM's output, the Company's average sales price per produced tonne of heavy minerals will rise in tandem with increasing prices, pushing profitability higher.

IDM has a high degree of insulation to risk in its current operations, most significantly from the Company's pending robust cash flow. The plant is fully permitted and has cleared all required environmental hurdles. Even in the event of a serious economic downturn, IDM's superior chromite product could see increased, or at least stable, demand as companies look to substitute chromite for zircon to lower their costs.

According to over three years of independent evaluations by international foundries and the University of Northern Iowa, IDM's chromite met or exceeded the results of zircon in numerous foundry tests; making it a viable, alternative to zircon, which commands a price four or more times that of standard chromite. IDM's chromite product should see a significant increase in demand as it gains market exposure as a zircon substitute or blend, further augmenting its premium to South African chromite.