bell potter tp 2.41 initation of coverage

This stock has been a solid performer with solid management. Looks like broker community starting to realise the value of the asset.


Giralia Resources (GIR) Speculative Buy
First rate iron ore portfolio in WA attracts major mining group

GIR has a promising and substantially undervalued portfolio of projects
GIR listed on the ASX in 1987, with principal activities of mineral exploration & development. GIR’s portfolio of projects include the Weld Range (Beebyn), Western Creek,
Earaheedy and McPhee direct shipping hematite iron ore (DSO) projects in the Mid West and Pilbara regions of WA.
GIR also has significant shareholdings in a number of exploration companies that have
been “spun out” of the parent company over the last two years. These include Red Hill Iron (ASX code: RHI), PacMag Metals (ASX code: PMH), U3O8 (ASX code: UTO), Zinc Co
Australia (ASX code: ZNC) and Carpentaria Exploration (ASX code: CAP).

Placement to AMCI is an endorsement of GIR’s project portfolio
The private American coal and bulk commodities group AMCI has taken a strategic shareholding in GIR via a 9.9% share placement, subscribing for 17.5m ordinary shares at
an issue price of $1.30 per share ($22.75m in total). The AMCI shareholding will represent 9.9% of GIR's issued shares. AMCI is an $800m resources and energy focused private equity venture managed by Hans Mende, president and co-founder of AMCI, and Mike Salamon, former executive director of BHP Billiton. AMCI currently has investments in Straits Resources (ASX code: SRL), Aquila
Resources (ASX code: AQA), Felix Resources (ASX code: FLX) and Gloucester Coal (ASX
code: GCL).

GIR’s iron ore projects should be of significant strategic value
We view GIR’s direct shipping iron ore (DSO) project at Weld Range as a key part of the consolidation of the emerging Mid West iron ore region. The GIR project is just along strike from the joint venture between Midwest Corp (ASX code: MIS) and Sinosteel at Weld Range, with Sinosteel recently making a $1.4 billion takeover offer for MIS.

Sale of GIR's shareholding in Red Hill Iron Limited to AMCI
Prior to the placement discussed above, GIR entered into a binding agreement to sell all of the shares GIR owns in RHI to AMCI and First Reserve. The key asset of RHI is the Kens Bore hematite deposit within the AMCI/AQA iron ore JV. AMCI and AQA are progressing a prefeasibility study for the potential JV development of a 25mtpa DSO project in the West
Pilbara.

We are initiating coverage with a Speculative Buy recommendation
We regard GIR as having a promising portfolio of DSO iron ore projects, with the potential for substantial growth. We are initiating research coverage with a Speculative Buy
recommendation. Our assessed value and 12 month price target is $2.41, and is based on a comparative review of peer group emerging iron ore producers. After the placement of GIR shares to AMCI and the sale of the RHI interest to AMCI GIR should emerge with a cash balance of $77m (and nil debt) and well positioned to capitalise on its promising portfolio of iron ore projects. At this stage no Scoping or Feasibility Studies have been carried out on any of the GIR
projects so GIR remains high risk, with no certainty these studies will be successful if carried out. Consequently an investment in GIR is highly speculative at this stage.