pattersons

INVESTMENT COMMENT
Event
SRK has placed 13.05m shares at $2.45/share to Australian,
UK and US based institutional investors.
The placement was heavily oversubscribed and has raised
the Company $32m.
Impact
We believe this is a good outcome with the Company placing
slightly under 15% more shares at above the last traded price
of $2.41/share.
While SRK is yet to provide guidance on what these funds will
be spent on, we speculate that it will allow the Company to
move towards developing its Stage 1, 2mtpa lump operation
at Cuzco.
The Stage 1 operation will utilise existing road, rail and port
infrastructure in the region. The ore will be hauled 70km by truck
to a nearby railhead and then transported by rail for 300km to
the port at Matarani.
SRK has entered into an MOU with Peru Rail which owns the
existing railway in the region. Negotiations continue regarding
rail access terms and costs with a resolution expected in the
next two months.
SRK is currently in discussions with the management of the
privately owned Matarani port who have confi rmed availability
of loading capacity of up to 2Mtpa.
Importantly, Stage 1 is not infrastructure constrained under the
current mine plan of 2Mtpa, and fi rst production appears on
schedule for the Company’s mid-2009 target.
SRK is one of the only iron ore juniors which is not infrastructure constrained in the short-term. Atlas Iron (AGO) and Gindalbie
Metals (GBG) being the only other near-term producers who
we view as being unrestricted in their small-scale projects.
These fi nancing terms are more favourable than our estimates
called for and accordingly our DCF derived and risk-weighted
price target has increased to $7.89/share. We reiterate our
BUY.