djc broker update 21c per sahre price target

NMR has announced the awaited results from their Phase I drilling at Takatokwane
South (NMR 65%), located south and east of NMR s recently released 4.2Bt JORC
resource at Takatokwane (NMR 70%). An exploration target of 2.0Bt, deduced from the
results received of 13 out of a total of 16 holes to be drilled in Phase I, significantly
increases the potential for a major resource upgrade. More importantly, the new area of
drilling provides evidence that the best, in terms of seam thickness, grade and open pit
economics, is yet to come. In short, we were surprised at the size potential of the new
zone and we re-affirm our Speculative Buy recommendation.
Key Points
The Phase I drilling campaign, starting late in 2011, is essentially located on the
continuation of the coal measures in the region, so it was expected to result in additional
resource tonnes. However, we were surprised to see an exploration target of 2.0Bt,
deduced from results received for the first 13 holes of a 16 hole program. The reason for
the upgrade has principally been the thickness of the seams in this area. Seam 2 reaches
thicknesses of up to 21m and is consistently represented as a thick seam in all drill holes
in the area over the exploration target zone.
Diamond drilling so far has intersected the same seams as those present on the
Takatokwane Project located to the west and north-west with Seams 1 to 4 being similarly
developed. However, additional Seams have been discovered in deeper drilling. Only the
best coal sections have been used to determine the exploration target which is based on
six holes located in the northern most portion of PL 159/2009.
We are assuming a 40% yield for the Takatokwane South exploration target to derive an
additional 800Mt in JORC resources, given the indicative yields on the new area are
slightly below those seen in the area hosting the existing resource. This would indicate a
total resource for the combined projects of approximately 3.2 billion tonnes.
Our sum of parts valuation includes estimate remaining cash of $1.0m and option
conversions totalling $3.0m to add to our revised valuation estimate of $91.7m, up 19.9%
from $76.5m to derive a total value of $95.7m or $0.21 per share ($0.17 per share).
We therefore maintain our Speculative Buy recommendation on NMR with a valuation
increase of 19.9% to $0.21 per share ($0.17 per share). We note that the Scoping study
is due for completion towards the end of 1Q2012 and believe this could be a catalytic
event. Phase II drilling to establish a JORC resource at Takatokwane South and to
identify the optimum area to define an Indicated Resource, leading to a Pre-feasibility
Study will continue throughout 2012.