this is why your buying remember

make your own assumption..........................Ferrowest is the pig end of town

June 13, 2007

WHO are these Ferrowest supporters?
And why is there suddenly a jump in the share price and the amount of securities being traded?

It can't be investors using Ferrowest as a tax loss before the end of June because the share price has moved to a record high.

And there is also a distinct lack of news from the company which might explain the sudden interest in the $20 million company.

Or is it just that people are cottoning on to the potential of the West Australian pig iron hopeful which is on the verge of delivering its first JORC resource for its Yalgoo project?

Either way, Ferrowest shares have jumped nearly 50 per cent in the past two days in what is largely a very tight share register.

According to the Daily Assay's Bloomberg terminal, the top five shareholders - directors Graeme Johnston, Barry Wyatt, Phil Evers, chairman Rob Duffin and managing director Brett Manning - hold 30 per cent of all capital.

But the top 20 shareholders own between 70 and 80 per cent of the stock, so that makes the sell orders very thin as the shares march higher. Biggest shareholder is Comet Resources with a stake around 16 per cent.

Ferrowest are looking at a 500,000 tonnes per annum, 20-year, pig iron project at its Yalgo project about 230km east of the port of Geraldton and nearby key infrastructure. Interestingly, the ground was previously held by Comet who went looking for gold and instead discovered magnetite.

Latest drill results from the Yogi deposit at Yalgoo showed week average magnetite iron grades of around 25 per cent as the company advances its pre-feasibility study. Sometime this month Ferrowest will also send its first 80 kilogram concentrate sample to Japan where Kobe Metals' subsidiary Midrex will test for pig iron potential using the ITmk3 technology favoured by Ferrowest.
Pig iron is still hot property as an alternative to scrap iron at feed electric arc furnaces and analysts reckon that demand will grow by 4.5 per cent, each year, up until 2011 at least when Ferrowest could be in production. Value adding in the WA iron ore industry hasn't had much success in the past, think of BHP Billiton's $2 billion hot briquetted flop.

A bankable feasibility study for Yalgoo is slated for December next year before financing, construction and production in January 2011.

But the calculations for revenue are compelling, even though some liberties are taken.

On the company's own forecasts, the MPI could be worth $US423 a tonne by January 2011 and production margins will be around $US155 a tonne.

So at capacity, that's worth $US77.5m for the company in the first year. Assuming prices stay around that mark for the next two decades (highly unlikely) Yalgoo is worth $US1.55 billion.

Obviously there are a lot of assumptions in that calculation - a long-term offtake buyer is found, Midrex's ITmk3 technology to turn the MPI into nuggets is successful, the steel boom continues in Asia and so on.

But the prospects are enough for Martin Place Securities, the same broker behind the now infamous $25-a-share call on Cudeco, to rate Ferrowest as a long-term speculative buy. And no, Martin Place have not put a price forecast on it.

According to Ferrowest managing director Brett Manning, the company has pretty much been talking to potential partners ever since the company listed in July last year.

“There's nothing that's come to a point yet,” he said.

“We are still on track for a JORC resource sometime this month, maybe that's why there has suddenly been a lot of interest. It's always going to take longer (to be in production) than a dig and ship operation when you value-add a project.”

“There hasn't been a lot of broker interest to date, people like the story but they are in wait-and-see mode.”

“What we are looking at is very strong margins and a low cost, high value operation.”

Forget Pig Iron Bob, we could one day see Pig Iron Brett.