GIR have released details of a drilling program being conducted at the new 100% owned McPhee Creek main range discovery north of Nullagine in the Eastern Pilbara this week. Results continue to provide extremely good encouragement for the definition of quite a sizable resource at McPhee Creek. We continue to rate GIR as a Speculative BUY and move our valuation up from $1.25 to $1.75 based on the assumptions on McPhee Creek. Key Points: Recent results from the resource definition drilling at McPhee Creek include hematite iron ore intersections of: 50m @ 60.3% Fe and 1.6% Al2O3 56m @ 59.0% Fe and 2.0% Al2O3 83m @ 56.1% Fe (open at end of hole) This follows the initial drilling in mid-September that recorded intersections of 90m @ 58.6% Fe (from surface to end of hole) 46m @ 60.2% Fe
GIR aim to produce an initial resource estimate for the western side of the Main Range discovery in mid December. A total of 71 holes have been drilled so far into this shallowly dipping, high grade mineralisation with new results providing further encouragement. GIR have place a conservative exploration target of between 100 and 140 million tonnes of hematite mineralisation at between 57 and 60% Fe for the main range target, which still remains open down dip and to the east. As the mineralisation appears to dip at very shallow angles, there is a suggestion that the mineralisation could extend far beyond the current limits. McPhee Creek is located 220 km south east of Port Hedland and within 50km of BCI /FMG mesa CID operation, where BCI and FMG intend to road and rail haul up to 5Mtpa of similar material.
We have updated our EV/resource tonne charts to see where GIR would be placed among its peers when including a new resource at McPhee Creek. We have been very conservative and have assumed an additional 50Mt of mineralisation from McPhee Creek to add to the existing 137Mt in existing resources. This changes to EV/resource tonne figure significantly with the new figure being just $0.88 after the addition of the 50Mt, against a peer average of $1.28 / resource tonne. Under this method, GIR would be valued at approximately $2.12 per share, up from our recently quoted price target of $1.25 per share. Speculative Buy Price Target : $1.75 per share
We believe GIR is undervalued and is a dark horse with significant upside potential. A large war chest of cash provides options but GIR seem to be focused on building the resource base through exploration and concentrating on potential development scenarios at Mt Webber in the short to medium term.
GIR Price at posting:
$1.23 Sentiment: LT Buy Disclosure: Held
