rest of report:
Coal Assets
Valuation
We have heavily risk weighted a preliminary DCF valuation for the coal assets and determined a valuation of $6m.
Our valuation is based on the early stage data the WPG have compiled, an assumed production rate of 4mtpa through Pt Pirie, capital costs of A$700m and operational costs of A$75/t.
On an un-risked basis our valuation is $55m, however, due to the early nature of the project we have discounted our valuation to $6m which reflects a confidence level of only 15%.
Peculiar Knob $165m
Exploration $15m
Coal Assets $6m
Net Cash $13m
Corporate Head Office -$9m
TOTAL A$m $190m
TOTAL NPV (A$ share) $1.56
RISKS
Woomera Access
As mentioned all of WPG?s currently granted tenements lie within the Woomera Prohibited Area (WPA).
A high level government review is currently being undertaken into the combined needs of mining and defence in the WPA. The timing of the results from this review is unknown as uncertainty surrounding the Federal election has extended the timing.
We see the risk of access for Peculiar Knob as low but for access to Hawks Nest as high.
Low ? Peculiar Knob, High - Hawks Nest
Sourcing Funding
Funding arrangements for the capital requirements are yet to be announced. We see this as a moderately low risk given the grade of the resource and the advanced stage of
approvals.
Moderate-Low
Operational Costs
If iron ore prices approach our long term price estimate at a faster rate than we forecast the high operational costs will put pressure on the operation.
Moderate
Resistance from Pt Pirie residents - Rail
The movement of up to 8mtpa through the heart of Port Pirie township will need to be managed to minimise disruption to the town. The rail line currently runs parallel and
intersects the main street. To mitigate disturbances WPG propose to break each train into three outside of the town limits and also
Moderate
Dust
Within the Pt Pirie region the town of Whyalla has a long history of iron ore dust control issues. These issues have been largely resolved however the issue will need to be
addressed by WPG. WPG propose to handle and store all iron ore in contained environments, reducing the risk of dust problems.
Low
Noise
At the recent community information day held by WPG the issue of potential noise from activities in Pt Pirie was raised, we see this as low risk as most of the loading activity will be contained within the storage shed.
Low
Woomera Prohibited Area (WPA)
The Woomera Prohibited Area covers a large portion of South Australia and in the last couple of years the relationship between mining and Defence has become more closely linked as both sectors increase activity within the WPA. The conflict reached a pinnacle with the blocking of the Prominent Hill sale to a Chinese company on national security grounds.
A review is currently underway to establish the working relationship protocols between mining and Defence. We feel that whilst the results will provide a formal framework for mining activities in the WPA it will not provide a mechanism for foreign ownership of assets within the area.
Within the WPA, a central corridor has been identified as an area of high national security sensitivity, consequently obtaining permission for mining activity in this zone at present is difficult.
Infrastructure
Road and Rail
WPG will need to construct an 95km private haul road from the mine to the rail. Permitting for the haul road is
expected to be approved by mid September 2010, with construction to start in 1QCY11.
The haul road and loading facility will be established close to OZ Minerals infrastructure. The truck movements required to move up to 3.5mtpa along the haul road will require WPG to build their own facility rather than utilise the OZ Minerals haul road. An underpass under the Stuart Highway will also be required to be built, this will be similar to the facility IMX Resources (IXR) have constructed under the same highway.
The crushing facility will be located at the rail loader.
The rail line is of sufficient standard and capacity to be able to transport the 3.5mtpa of ore without extra passing loops needing to be built.
Port
For a long time this project and other undeveloped iron ore projects in South Australia have been held up due to the lack of available deep water port facilities. Despite the announcement in late 2008 that a consortium led by Flinders Ports was selected as the preferred tenderer to construct a facility at Port Bonython there has been little news on the development.
In exploring other options including using containers through Port Adelaide, like IMX Resources, it was decided to use a trans-ship operation out of Port Pirie.
The use of barges is currently successfully employed by OneSteeel (OST) to export ~6.0mtpa hematite from Whyalla. WPG propose to use a self unloading transport ship as opposed to barges.
WPG have entered into a binding lease, licence and pricing agreements with Flinders Ports Pty Ltd to access Berth 7 at Port Pirie for the export of iron ore and coal. Initially the agreement is for 10 years with an option to extend for 30 years.
WPG has indicated that they intend to build a facility which can accommodate up to 8mtpa and their requirements are in the range of 3-4mtpa. It is our understanding that the excess capacity will be made available to other potential bulk commodity exporters. We assume that if this situation arises then it would be a revenue generating venture for WPG. Given the early stage of the potential users in the region we have not included the potential revenue in our modelling.
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