ord minnett initial coverage buy

ASX Code: FMS
Company: Flinders Mines Limited
Share Price: $0.13
Current Recommendation: Buy
Current Risk Rating: High
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Flinders Mines Limited
Navigating a course to port
Flinders Mines Ltd (Flinders) is an Australian based and focused iron ore explorer and developer. Its flagship project, the Pilbara Iron Ore Project, is a large, long life, advanced and potentially low-cost hematite iron ore project in the Pilbara region of Western Australia.

Ord Minnett Limited (OML) initiates coverage of Flinders with a Buy recommendation and a high risk rating. We view Flinders as an overlooked Pilbara iron ore player and one that will come to the fore over the next 18 months. Flinders? key attributes include:

????????? A large, shallow resource of 748 million tonnes with in situ ore grades between 55 and 60% Fe. Importantly, the majority of the resource sits above the water table and is amenable to a low strip ratio.

????????? A definitive feasibility study (DFS) started in June and is due for completion by June 2012 with WorleyParsons as manager. The DFS is considering a 15 million tonne per annum operation, for at least 15 years, producing both direct ship and beneficiated iron ore.

????????? Flinders needs to secure an infrastructure agreement that would provide rail and port access for its iron ore. This will be the primary driver of shareholder value over the next 18 months with Flinders having multiple options to secure infrastructure, a major positive. Yet the key risk to any investment in Flinders is that it is also beholden to securing an infrastructure agreement.

OML?s risk adjusted, base case valuation for Flinders is $0.16 per share with an upside valuation of $0.26 per share, based on a long term iron ore price received of US$72/t. OML?s 12-month price target is $0.21 per share, taking into account the risk in formalising an infrastructure solution.