Attached is Ocean's take on UMC latest report. A NVP of between A$1.18b and A$2.4 billion - assuming that the proposed directors' options are approved (a given) there will be 160.35m shares fully diluted - thus the targeted share price is between A$7.35 - A$14.96. Anyone for $3.00 by December 20th - still more than possible imo.
Ocean's report News UMC has released the findings of its preliminary financial study investigating the economics of potential options for the development of its 64.5mt high grade bedded iron ore resource at the Railway prospect. The preliminary financial model incorporates the findings of an independent scoping study conducted by Prodetheus Limited which have been reviewed by UMC’s recently appointed Project Development Manager, Sten Soderstrom, and forms the Base Case of a 10mtpa of operation; it is a precursor to the upcoming pre-feasibility study which is expected to be complete by mid 2009.
Preliminary Financial Model Summary (mid range Base Case)1
1 Refer to UMC’s press release for greater details of the qualifications and assumptions Total cash operating costs are expected to be ~$40/t, assuming commercially agreeable infrastructure access, with processing plant and infrastructure investment of $40/t of annual capacity (excluding capitalised pre-operating expenses), at the lower end of recent green field iron ore projects due to Railways proximity to existing operations, rail and infrastructure. Indicative net operating profit after tax, assuming a 30% decrease in contract pricing, is in the range of $333m-$596m pa with consequent Net Present Value in the range of $1.18b-$2.4b. UMC has stated it is considering various options for funding the project, including third party equity and/or joint venture, and we believe the quality of the high grade DSO iron ore at the Railway deposit is extremely attractive to the market because of its 60%+ Fe grade and impurity levels, which appear blendable with BHPB and RIO’s neighbouring operations.
Implications The findings of this preliminary study highlight the robust nature of UMC’s iron ore assets, applying estimates which we believe have scope for favourable revision in a pre-feasibility study and assuming no extension to mining operations beyond 7 years – ie giving no value to future exploration success or Railway’s other DSO resource other than the Bedded Iron Ore. This is in line with management’s policy of providing conservative guidance to the market. The study excludes a 20mt of detrital high grade ore which would be, in its own right, a company transforming asset for a number of UMC’s junior iron ore peers and we expect this resource to be included in UMC’s upcoming feasibility studies.
Summary of the different components of the Railway prospects inferred resource
UMC currently has cash reserves of ~$17m which we estimate will enable it (at least) to complete: a pre-feasibility study on Railway; project exploration and metallurgical programmes; environmental and hydro-geological studies; and potentially achieve a significant increase in its high grade DSO resource (dependant on resource upgrades at Railway from infill drilling and exploration success at new priority targets). By mid 2009 we believe these work programmes will be complete and negotiations for commercial offtake agreements will be well advanced. Since UMC originally listed in late 2004 it has raised a total of ~$30m, highlighting the return which has already been achieved with the first ~$13m and the potential transformation the Company could achieve with the remaining balance.
Key Events / Valuation Triggers Near term news flow is expected to positive dominated by the development of UMC’s iron ore projects including: · September quarterly report - Outlining initial exploration drilling results at priority targets, including Railway East, Northern Yandi headwaters, and Jumbo Junction; · AGM Nov 7th - for which today’s release has been prepared for a presentation at the AGM; · Railway prospect - drilling programmes and assay results are ongoing to upgrade Railway’s resource status and potential tonnage, with particular focus on “Value in Use” criteria. Indeed the Company aims to achieve a 15-20mt Marra Mamba bedded iron ore resource from its 64.5mt inferred resource; · Bauxite prospect - drilling programmes are now complete and assay results should be shortly available; · new and ongoing discussions with a number of infrastructure owners in the region and further development of the ongoing pre-feasibility studies.
UMC Price at posting:
75.0¢ Sentiment: Buy Disclosure: Held
