cheapest i/o in the pilbara

Hi all

Many of you who have been here longer than a week would already know about this report by fosters stockbroking, it is old news but is more for newbies like me and reinforces my decision to buy an hold for the coming months. FMS very much reminds me of the old adage "the worst house in the best street" Here is why:

From Fosters:

We recently attended a site visit at Flinders Mines? Pilbara Iron Ore Project (PIOP) and met with the newly appointed CEO Gary Sutherland and Exploration Manager Nick Corlis. We were very impressed with FMS? advances and strategy for developing its two significant iron ore projects (Blacksmith & Anvil).
? Since our last note (Aug 2010), FMS has delivered an impressive upgrade in JORC resources from 658Mt at 55.4% Fe (24% Indicated, 76% Inferred) to 748Mt at 55.3% Fe (36% Indicated, 64% Inferred). We highlight this involved a conversion rate from Inferred to Indicated in excess of 95%. Importantly, this demonstrates to the market the project has highly continuous mineralisation.
? As illustrated below, the PIOP is located 175km south of Dampier in the Pilbara (WA), in close proximity to FMG?s rapidly developing Solomon project.
? FMS is well located, close to existing and proposed rail infrastructure. In our view FMS has three rail options to connect to port:
i. RIO?s Dampier-Paraburdoo railway line (19km east);
ii. The newly approved FMG expansion which includes the $5.4b Solomon mining hub to Port Headland (40km east); &
iii. The Aquila/API Joint Venture proposed rail to Anketell Port (30km west).
Source: Company
Rio Tinto?s Paraburdoo to Dampier Rail Line
Source: FSB Research
? The PIOP resources are contained over 10 deposits in close proximity. It was evident to us there is potential for additional resources of DSO ore at Blacksmith through a small amount of drilling into the foothills of exposed Bedded Iron Deposit (BID) surrounding the existing defined resource areas. We note that a fly-over of FMG?s Firetail area appears to have delivered additional tonnes to its project area by drilling into the foothills.
? The 2011 exploration programme consists of infill drilling plus exploring for additional DSO material at Blacksmith.
Blacksmith Project Areas
Source: Company
? Management have highlighted the PFS, due for release in January 2011, is on track for completion and will address two infrastructure options. A BFS will kick-off in Q1 with a target delivery in late 2011/early 2012.
? DSO Operation and Beneficiation Operation: Targeted for production in 2013 from 5Mtpa (expandable to 15Mtpa) with a 15 year mine life. The likely short term focus will be on the higher grade Delta deposit. The resource base lends itself to open pit, long life, relatively low strip ratio and low cost operations. The deposit is very continuous, close to the surface, requires minimal beneficiation using gravity separation, and the Iron Ore product has a low
phosphorous (0.07%).
? The company has submitted the mining lease application, the environmental approvals pathway has been established and Native Titles negotiations will commence soon.
? With a strong cash position of $47.5m (at 24 Nov 2010), FMS is well funded to continue its resource drilling programme and complete much of the BFS.
? The company also has the early stage Canegrass Magnetite Project in the Mid West which is expected to release a maiden inferred resource in 1Q2011.
? We also note that the register of FMS continues to remain open, with no strategic/Chinese shareholders. FMS is one of the few small-mid cap iron ore companies without a strategic partner. We do not expect any form of alliance, merger or Chinese funding deal to materialise before the full release of PFS.
Valuation:
? Peer approach: With a market cap of $246m (EV of $199m) FMS is trading on a EV/t of just $0.27/t which is a sizable ~72% discount to the peer group average (not including FMS) of $0.96/t.
Peer Comparison (Iron Ore Explorers) EV/t
Source: FSB Research
? Recent transactions: Recent transactions involving UMC (Oct 09), FRS and BRM (Nov 10)
highlight the significant valuation upside to the FMS share price should it attract the interest of an acquirer.
FMS Valuation
Source: FSB Research
? Due to FMS currently having no access to rail/port, our target price is risked by 40% which represents a valuation of $0.23/share, providing 70% upside to the current price.
? Should a corporate transaction eventuate, the unrisked valuation per share could be greater than $0.50/share.
Catalysts:
? We expect the PFS to be realised in January 2011.
Recommendation. BUY FMS (Price: $0.135; PT: $0.23; Mkt Cap. $246m)

PGamble

P.S What is another few weeks wait if that's what it amounts to

P.P.S For a copy of the full report including pics and diagrams here is the link:
http://www.fostock.com.au/talkingpoint/FMS101202.pdf