I thought it was worth reposting this post by Jiminy as it was a (IMO) good one. This is Jiminy's one and only post on Hotcopper. It was posted on the 21st July just before the release of the last quarterly.
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"My first post!!
Long term UMC holder. Some interesting comments. I am happy to hang in there on basis that location, ore grade, resource size and political pressure will eventually come to head and result in Railway and other potential UMC tenement deposits being mined at good margin - probably in a minegate sale to BHP / Rio - who may in future find value in using it as part of their blend - especially given no additional rail infrastructure cost to them.
However, I believe that timing will be longer than most expectations. Water is the big issue at Railway - as (1) wet marra mamba ores are not easy to mine, handle or dewater (just ask FMG who underestimated this issue - albeit they are in a different and much thinner "member" of the Pilbara stratigraphy), and (2) valley location near Karijini NP may result in a lengthy enviro approval process for required dewatering - and hence significant hydrogeological testwork likely to be required - and I would consider even 2011 startup to be optimistic.
It would probably be beneficial if UMC management could be upfront and actually set out some details on the process they are undertaking in this regard - as I think this would help with general investor understanding and buy-in. Also, I suspect that BHP and Rio, who would be well aware of the water issue, would be waiting for some progress on this before fully committing to any infrastructure deal - as they do need some certainty in the timing for scheduling purposes (but maybe could enter into some sort of indicative MOU - to ward off potential Chinese backers pressing for rail access). I would expect that the BHP / Rio cooperation will lead to effective rail loop to the central Pilbara region within 5 years and this would readily facilitate handling extra tonnages from this area in particular (as opposed to say Jimblebar area aspirants (eg Ferraus). I doubt FMG would be interested at this stage - as would be unlikely to justify rail infrastructure from their existing line - especially as Solomon looks challenging at present due to high alumina. But their corporate aspirations and strategy may result in them pursuing a more aggressive view!
On plus side, most other iron ore juniors have higher relative ratings but suffer from even larger challenges - whether it be ore quality (eg IOH phos), beneficiation (eg BRM - can't see this working at all), infrastructure (eg Aquila). There are not many deposits outside the majors (and Hancock) in Australia with the potential to be <$40/t operating costs with relatively low capex requirements - even factoring in the water issue (which should be able to be managed).
Management just need to ensure that they remain focussed on key areas needed to progress project in eyes of potential partners and in eyes of investors (so as to maximise share price and minimise dilution until project value can be realised).
Its definitely a mid-long term investment - just need to sit and wait - as its difficult to gauge when the expected value additions will flow to shareholders."
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What I also see as a relevant consideration is that the development of any project is progressive in nature. As such, UMC's share price will not jump from $1 to $5 overnight but will steadily move north as the Railway Deposit progresses to a measured mineral resource.
I am expecting a few share price spikes along the way as the corporate action hots up. Looking at the recent surge in trading volume just maybe we are in for some very good news.
Fingers crossed!
UMC Price at posting:
$1.02 Sentiment: Buy Disclosure: Held
