Hi Superwealthy, broadly I'd agree with your numbers - although...

Hi Superwealthy, broadly I'd agree with your numbers - although the detail around the sliding royalty payment would be nice. I've gone with a long term average price of $60-90 per dry mt (62% Fe) FOB with a best case upside of $100-120/t. I can't see prices remaining above $140 in the longer term with all the extra capacity coming online from BHP, RIO and FMG.

Based on the PFS, a mineable resource of 180mt (excluding the small southern area that FMG may ignore) seems reasonable. This resource would presumably be mined before most of FMGs Nyidinghu (less overburden) and to reduce P might be mixed 3:1 with Chichester. FMG is looking to increase to about 95mt/annum from Chichester so this could allow up to 30mt/annum of blended Nyidinghu/IV material through Herb Elliot port. In the scheme of their massive expansion plans that not difficult but equally I'm not sure how immediate a priority it would be. We can at least say that IOH ore would be the first mined at the Nyidinghu/IV site. FMG have been given until March 2013 to commit to the deal (although a 20m payment if they do so is no big deal either way so I'm not really sure what this time is for - just the DFS or also a mining license?) So lets stick with 2017 as a first production target.

Annual production of 20-30mt (capped more by blending requirements than anything else) gives a 6-9 year mine life. Lets go with 20mt for 9 years to simplify things.

Worst case
Using a 2% royalty and FOB price of $60/t gives annual royalty of $24m.
NPV(10) of this for 9 years commencing in 2017 is $80m or $125m at a 5% discount level. Lets say 50-75c per share.

More likely case
Using a 2.5% royalty on a FOB price of $80/t gives an annual royalty of 40m.
NPV (10) for 9 years commencing in 2016 is $130m or $210m at 5%. Lets say 75c - $1.25 per share.

Upside case - not completely unrealistic
Using a 5% royalty on a FOB price of $120/t gives an annual royalty of 120m. NPV(10) of $390 or $635m if discount reduced to 5%. Ballpark $2.25 - 3.75 per share.

Looking through this its clear that clarity around the royalty rate (ASAP) as well as FMGs mining plan (by March 2013) will greatly assist IOH valuation. Personally I'm happy to start with ascribing a $1 per share value to IV with an additional couple of $ upside. I expect the SP will consolidating around $2.

Looking ahead, a deal on Bucklands is the next likely SP catalyst. PFS is due in Q4 so unlikely something will be worked out before then. That leaves the magnetite resources (resource upgrade plus Maitland scoping study) as the news driver for 2012. Personally I struggle to see where IOH can add value here. So all up it looks like IOH will have around $130m cash to play but nothing excitingly value accretive to spend it on. So I expect IOH will bump along around $2 for 2012 unless AV pulls a rabbit out of his hat. I do wonder about all the recent new hires - perhaps getting Bucklands into production via a JV with API is a possibility? This could add significant value but I can't see it happening prior to a SS.