This been posted? Haven't got time to check or to fix it up.
Fosterstockbroking morningsheet 8thJuly
Cape Lambert Resources Ltd (CFE.ASX, $0.47/sh, Mkt Cap $295m, Cash $71m +~$70m in mark-to-market equities) ? Marampa Hematite Resources more than double to 680mt. SPEC BUY (PT $0.80/sh)
? JORC mineral resources increase 245% to 680mt grading 28.2% Fe. This increase builds on the maiden resource announced last year of 197mt grading 28.5% Fe. The resource is just shy of the lower bound of the stated 0.7-1.0Bt exploration target, however, only 60% of the known mineralised strike has been explored and the potential for increasing the resource again and surpassing the upper bound of the target is high.
? The resource can now underwrite a 10mtpa project spanning 20 years. A previous scoping study at Marampa was conducted on a 5mtpa 12-year project showing robust economics. The expanded resources also include 42mt of shallow, soft oxide mineralisation that can provide the company with a starter lower cost ore feed.
? CFE is looking very cheap at these levels. On the expanded resource, the contained Fe at Marampa amounts to 192mt. On current EV metrics, this works out to $0.80/t cont. Fe. This represents a deep discount (nearly 60%) to current average EV$/cont. Fe for West African iron ore explorers (all of which have ore resources or potential of similar attributes to CFE requiring beneficiation) of $1.86/t cont. Fe. If we apply this multiple to CFE?s expanded resource base, we get an un-risked EV of $357m, or $0.79/sh. This figure does not consider any of the exploration upside that exists at Marampa.
? Additional newsflow will aid in an upward price re-rating. As we mentioned in our note last week, CFE is keen to start a sales process for the Marampa project, which could lead to an IPO in London by October. The company will retain a 25% stake in the project and the new company will be valued between A$500 and A$700m based on recent West African comparables. The partial sell down of the project might also be achieved by a direct investment by a larger steel producer. Whichever route is taken, we expect there will be great interest in the project given regional iron ore activities are heating up.
? We rate CFE a SPEC BUY with a Price Target of $0.80/sh as the company continues development of Marampa.
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