screaming buy

Wow, what a tepid response by the market to what I thought was a great deal for junior miner who most recently sold tenements at around 70c a tonne, above above market expectations.

The market may be finding it hard to value the FMG deal not knowing precise terms.

Given its only a MOU thats been signed, and finalised legal documentation is to be executed, Im expecting further details to be provided about the royalty rate structure (unless of course FMG or IOH want to keep it confidential so as to not impact future deal making).

As a result though its been really tough trying to model what this deal is worth. But even going on a conservative $100 IO price, mine capacity of 12mt, a 2% royalty, and a discount rate of 7% i get an NPV of $190m ($1.40 a share). Add the $145m in cash (Rio deal, Min res deal, $45m in option fees from FMG assuming IV goes ahead and cash from the last SPP)and you get to a share valuation of $2.04.

So at anything under $2.00 I think this gives you a free exposure to Bungaroo South(260mt- cant see why we wont get at least same terms as IV) and our magnetite tenements (of which FMG have an option to farm in), a long term play on the the India and China story supporting a IO price over $100 that leads to a higher royatly rate greater than 2% and a larger than 12mt mine capacity that FMG will surely implement.

This all provides significant upside from $2.

From their announcement yesterday FMG states "Following the normal approval processes Fortescue is committed to expediting the project."

Strategically you would think IOH now, on the cusp of cashflow, gives them the financial capacity to look for production deals on Bungaroo and the magnetite deposits.

The market may be struggling to value the FMG deal but at $1.60 this is a screaming buy for me.