austock report - $1.66 price target

We maintain our Buy recommendation with a revised target
of $1.66/share (Previously $1.56)

Investment View

The recent draft recommendations into access in the
Woomera Prohibited Area (WPA) have exceeded our
expectations and potentially doubles WPGs accessible
hematite resources.

As the access recommendations are proposals we have not
ascribed any value to the Hawks Nest deposits in our
valuation. Access offers WPG upside as it potentially
increases mine life and/or production rates.

Debt facility conditionally agreed to with Deutsche Bank AG to provide a US$120m funding package. Consisting of
US$70m senior debt with detachable warrants and a senior
secured prepayment of iron ore for US$50m. We have modelled ~$50m in equity to be raised.

Positive BFS highlights the high grade (64% Fe) Peculiar
Knob iron ore supports a DSO operation utilising transshipping at Port Pirie.

BFS estimated capital costs are $138.5m for mine and port
infrastructure and $29.3m for working capital.

LOM Operational costs $64.35/t FOB plus $5.61 royalties,
sea freight $17/t for a total CIF to China cost of ~$87/t.
Current spot price CIF China for 62%Fe is ~US$158/t.

Development Application lodged for Port Pirie infrastructure, decision expected in 1QCY11.

The WPG board are expected to make the decision to mine
in late 2010. With the ordering of long lead items to
commence immediately, to meet the forecast production
start date of late 2011.

At full production in FY13 EPS is estimated at $0.47 per
share and P/E is 2.3, from revenue of A$348m and NPAT of
A$84m.

Risks

Whilst we are positive on the sentiment of the draft access protocols proposed for the WPA some risk remains that the final process will not adopt all the recommendations.

Although almost fully permitted delays could be experienced if the final approvals are not obtained in the time frames expected.