A research report from sept 2011 by capital investments of which I have summised for your benefit. Well worth a read for a company with cash, a small m/c and a big future:
Gladiator to develop a low cost, high value-added pig iron project in Uruguay. Gladiator Resources Ltd (“Gladiator” or the “Company”) has announced a JORCCode Compliant Inferred Resource of 58.24Mt @ 27.9% Fe and achieved the first milestone on its path to an 80% interest in the Zapucay Project (“Zapucay”). Gladiator has confirmed its ability to generate a high-grade magnetite concentrate, after beneficiation, suitable for pig iron production. With a high value-added product delivered to the marketplace utilising proven, low-cost processing technologies and established infrastructure, Gladiator is positioned to generate excellent cash flow and high returns for shareholders. COMPANY HIGHLIGHTS • JORC Code compliant Inferred Resource of 58.24Mt @27.9% Fe announced. • Geophysical modelling estimates 55.1 million cubic metres of magnetic material equivalent to 170 million tonnes. • Established road, rail and port infrastructure give Gladiator several options for export. • Substantially reduced input costs along with proven, low cost technologies will result in significantly lower operating costs than those of comparable pig iron producers in Brazil. • High value added nature of pig iron, along with strong demand, creates outstanding cash flow and exceptional profitability for this small scale operation. • Company is well funded to execute its next steps in exploration and development with approximately US$5.0M in cash. • Experienced board of directors and management team with plans to bring in an industry leading CEO. • Uruguay offers a very low level of country risk. The JV comprises a 750km2 tenement holding, approximately 400km north of Montevideo, the capital of Uruguay, and 50km from the border with Brazil, along one of the most prospective areas for iron ore of the Isla Cristalina Belt. Zapucay encompasses the Papagayo, Iman and Buena Orden magnetite deposits. Field reconnaissance has identified the Zapucay area as the most attractive for initial development. Other outcrops of magnetite are known to occur within the JV area along with the potential for nickel and copper occurrences. Gladiator has announced a maiden JORC Code compliant Inferred Resource of 58.24Mt at 27.9% Fe within Zapucay. This resource is based on 4,800 metres of RC and diamond drilling over two kilometre strike length at the Cerro Iman (1500m strike) and Cerro Papagayo (500m strike). Geophysical modelling estimates a volume of 55.1 million cubic metres of magnetic material at Cerro Iman, Cerro Papagayo and Areicua, equivalent to a minimum of 170 million tonnes, indicating potential for significantly more resource. Drilling is now in progress at the 8km long parallel Buena Orden ridge system and the 3km strike length extension on the Papagayo ridge system. Davis Tube Recovery test work indicates a 33.7% recovery rate utilising magnetic separation. In conjunction with achieving the milestones of the Company’s JV agreement, work has commenced on the Feasibility Study for Zapucay including metallurgical testwork, engineering, financial modelling and infrastructure analysis. Zapucay has significant advantages that should result in production costs as low as half that of competing companies in Brazil (the largest producer of pig iron). These advantages include: • Gladiator will have its own magnetite concentrate feed for pig iron production. Most of Gladiator’s competitors purchase their iron ore feed and transport it to site, at significant cost. Gladiator’s cost of concentrate feed is as low as 20% that of its competitors. This cost represents a substantial cost component for pig iron production. • Zapucay has a low strip ratio underpinning low cost open pit mining operations. • Low cost charcoal, to be fed into the mini-blast furnace, will be produced from nearby timber plantations, thereby dramatically lowering the acquisition and trucking cost of this principal feedstock. • Zapucay will use charcoal as the reductant in the blast furnace as a substitute for coking coal. Gladiator’s cost for charcoal is as low as 40% that of its competitors, which represents the other significant cost for producing pig iron. • DPC (Drying, Pyrolysis and Cooling) biomass pyrolysis carbonization technology will be used to make a high quality, charcoal, a low cost substitute for coking coal, at significantly lower cost. Gladiator holds the worldwide, except for Brazil, licensing rights to this proprietary technology. • Uruguay offers an existing, modern system of infrastructure and has the densest highway network in Latin America. Zapucay has a paved road within 10km, railway within 100km, a power grid within 20km and three different port options; Fray Bentos (250km), Montevideo (440km) and Rio Grande (400km). • Uruguayan tax policy allows Gladiator to defer corporate taxes until it has recovered the full capital cost to develop it’s own plant at Zapucay. As a result of the above advantages, Zapucay is expected to enjoy cost benefit of approximately 50% over its Brazilian competitors. Estimated operating costs per tonne of pig iron Gladiator’s Zapucay Project ~ US$220-240/t Typical Brazilian Producers ~ US$450-495/t Cost benefit per tonne ~ US$210-275/t Cost benefit percentage ~ 46.6%-55.5% EXCELLENT ECONOMICS AND STRONG CASHFLOW Gladiator’s initial financial modeling calls for Zapucay to generate between 400,000 and 600,000 tonnes per annum of pig iron. At these levels of production, Zapucay will generate cash flow of between US$55m and US$120m and an IRR of between 21% and 38%. At the low end of the spectrum, with a pig iron price of US$400 per tonne and annual production of 400,000 tonnes, Zapucay’s capital payback period is 5 years. With current pig iron prices of over US$500t and low operation costs, Zapucay has substantial insulation from unforeseen logistical problems or price swings. KEY NEXT STEPS IN PROJECT DEVELOPMENT Gladiator is moving forward on a number of steps in the development phase for Zapucay, including: •Continued resource drilling •Environmental impact assessment •Pre-feasibility study on initial starter project •Study of an integrated charcoal plant, sinter plant and blast furnace •Earn 51% and 80% interest, respectively, in Zapucay •Potential TSX listing Gladiator currently has approximately US$4.0 million to fund these next stages of the project development, including the option of acquiring additional assets in the area, if possibilities arise to economically expand the project. Ongoing exploration suceeses will create the opportunity for larger development of the project. EXPERIENCED BOARD AND MANAGEMENT Gladiator’s board of directors has a wealth of experience in strategic planning, exploration, resource/reserve estimations, feasibility studies, mine geology and planning, project development, open pit and underground mining operations, mine management, marketing, mergers and acquisitions. This experience includes positions within and/or consulting with BHP, North Limited, WMC Limited, Portman Limited, Western Metals, Orinoco Iron, Mitsui Iron Ore Development, Mineral Enterprises Limited, Thiess, and One Steel in Australia, Africa and Southeast Asia. Gladiator is currently seeking additional staff in the areas of exploration and technical development. The company will initiate a search for a Chief Executive Officer experienced in the iron ore industry. LOW COUNTRY RISK Uruguay is a politically and socially stable country with relatively low country risk. GATEWAY TO THE MARKETPLACE Uruguay is strategically situated to supply pig iron to the North American market, the of the world’s largest pig iron importers and the leading importer of Brazilian pig iron. The global market for pig iron is estimated at 18.5mt with the seaborne export market estimated to be 11.5mt. Because steel companies own the majority of pig iron producers, statistics in this market are limited. However, one certainty is that demand for steel is set to soar over the next five years as China races to meet the demands created by the country’s industrialisation and urbanisation. China’s state-owned China Iron and Steel Association recently released its latest estimate of steel production forecast output of between 650 and 750 million tonnes by 2015. These figures equate to an annualized increase of between 11% and 25% a year for the next four years and point towards continued strong worldwide demand for the inputs needed to create steel, such as pig iron.
PG
GLA Price at posting:
5.7¢ Sentiment: Buy Disclosure: Held
(20min delay)
