Preliminary view from Fosters- price target still being calculated.
Very conservative valuation, looks like the analyst banged it together quickly using numbers we have used as a base, low case, valuation. Interesting comments about FMG trucking the stuff out early.
Ocean equities also comment: "Iron Ore Holdings Ltd - ‘Win win’ deal with Fortescue expected to lead to the rapid development of the Iron Valley project". Looking forward to their valuation.
From the Fosters report:
"Fortescue deal on Iron Valley delivers significant shareholder value. We consider the MoU entered into with FMG to be an excellent outcome for IOH shareholders given significant value will be realised over the life of the asset, whilst eliminating the large level of capital expenditure, dilution and inherent risks of developing a 12-15mtpa iron ore project. Using an assumed royalty of 3.0% (stated range is 2% - 5% dependent upon Fe price), production rate of 12Mtpa commencing in 2015, long term Fe price of $65/t over a 15 year mine life, cash payments of $45m (non-refundable $25m and $20m upon exercise) derives a NPV10 of ~$190m. This equates to an EV/t Fe at Iron Valley of $1.25/t."
Again very conservative parameters still gives you a valuation that justifies the current market cap with significant upside given we know FMG will go at this hard as their growth strategy.
" Low risk of FMG not exercising option given $25m non-refundable deposit and contiguous ore body with 2Bt Nyidinghu deposit: Iron Valley is contiguous to FMG’s Nyidinghu deposit with the mineralisation at Nyidinghu extending into the Iron Valley tenement, providing a logical reason for the projects to be under a single development scenario and mine plan. In our view, FMG could exercise their option well before the 13 month expiry period given the ability to potentially start early production via a low cost trucking operation exploiting the mineralisation at Iron Valley starting at surface and gently dipping towards the FMG tenement boundary, with approximately 40Mt sitting above the water table and therefore short lead time to production. We estimate 2-3yrs of ore to be available for trucking whilst infrastructure and water management strategies are put in place. We are also confident that FMG have completed extensive due diligence on the synergies and benefits of developing Iron Valley prior to committing a substantial non refundable payment of $25m".
" We reiterate our BUY recommendation with our price target UNDER REVIEW. IOH’s market cap is ~$270m, cash is ~$140m and the Iron Valley royalty NPV is worth ~$190m. If we were to apply an EV/t metric of $1.30/t (in line with recent transactions) at the flagship project at Bungaroo South we would generate an asset valuation of close to ~$180m, totalling >$500m which is >$3/sh and doesn’t include any value for the earlier stage assets such as Maitland River and Dempster"
IOH Price at posting:
$1.57 Sentiment: Buy Disclosure: Held
