Cheap optionality on resilient pricing. BRM remains one of the cheapest iron ore exposures in our coverage universe trading at 7x FY10 and 4x FY12 earnings, and at an 89% discount to our DCF derived valuation of A$5.45/sh. BRM offers exceptional leverage to ‘stronger for longer’ commodity pricing courtesy of a large, low-grade resource base. Despite recent resource upgrades, BRM remains undemanding on peer comparison, trading at EV:Resource metrics A$4.60/t in-situ DSO hematite versus a sector average of A$10.70/t. We reiterate our Speculative Buy recommendation as development studies progress. Rapid Development. BRM is aggressively progressing baseline environmental and development studies for Stage 1 & 2 projects while simultaneously pushing to crystallise a commercial haulage solution. DSO scoping study positive. BRM delivered a positive scoping study for development of a Stage 1 10mtpa DSO project at Marillana assuming several scenarios and capital cost estimates to +/-30% accuracy. Detritals the main game. Testwork has confirmed the 1.1bt detrital resource overlaying DSO mineralisation at Marillana is upgradeable using conventional beneficiation technology. We identify potential for a long-life, +25mtpa detrital project at Marillana and assuming BRM achieves a timely haulage solution, we expect significant value uplift will follow. Catalysts. (1) emerging clarity regarding third party infrastructure access in the Pilbara (port and rail); (2) successful execution of ‘starter’ production Q4 CY09 at +/-2mtpa as a precursor to Stage 2 (requires timely feasibility study, permitting, funding, haulage infrastructure, port handling); (3) Potential direct investment by Chinese groups commensurate with several CA’s entered into and announced by BRM.
Disclosure: Patersons Securities Limited acted as Lead Manager to the issue that raised $8.14m at $1.05 per share for BRM in December 2007. It received a fee for this service.
Josh Welch Director | Resources Analyst
BRM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held