here it is
Cape Lambert
Australia | Mining | CLIO.L 29 January 2008
Contact
Danny Keating
+44 (0)20 7523 8417
[email protected]
Recommendation BUY
Perseverance pays off
Price 16p
59% increase in resource – ability to produce saleable confirmed Target 45p
Event – company announces substantial increase in resources
Cape Lambert announced an updated resource statement increasing the
total resource to over 1.5 billion tonnes (Bt), of which almost 1.0 Bt is
classified as Indicated. The resources have been metallurgically tested to
confirm that the magnetite mineralisation can be concentrated into a
saleable product. The statement includes only 65 of the 88 drill holes
completed in 2007 and a further resource update is planned for Q2, which
will incorporate the assay results from the 23 remaining 2007 RC holes as
well as the results from the Q1 2008 drilling programme. The statement was
prepared by independent international consultancy Golders Associates.
Quest™ data Current 5-yr ave
Market Cap: £42m
EV: £0m
Shares issued: 265m
Daily ave. volume: <1m
Stock Performance
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J F M A M J J A S O N D J
Cape Lambert FTSE AIM (Rebased)
Performance 1m 3m 12m
Absolute % -9 -26 10
Relative* % -3 -12 22
Source: Datastream *Rel to FTSE AIM
Project advancing on schedule and with exceptional results
The transformation at Cape Lambert is startling. Less than 6 months ago,
the company had all but sold its Cape Lambert property to a Chinese
investor, Mr Deng. In what has proved an astute decision, the Cape Lambert
management elected to continue the exploration programme throughout
2007, despite the imminent sale. Thus, when the transaction failed to
complete in October 2007, advancement of the project had not been
delayed and development of the project has continued uninterrupted. Work
on the project has included not only exploration, but also the conducting of
baseline environmental impact assessment, metallurgical testwork,
assessment of port options in conjunction with independent consultants, etc.
Further resource upgrades imminent before completing BFS
We anticipate that the new resource statement in Q2 will reclassify a
substantial portion of the remaining 577Mt of inferred resource, primarily
contained in the Northern Extension Area, into the Indicated category. We
estimate that a Measured and Indicated resource base of 1.3Bt would be
sufficient to underwrite a bankable feasibility study assuming a 15Mtpa iron
ore concentrate operation with a 20 year life. We expect the company to
begin preliminary mining studies and pit design work with the aim of
finalising a BFS by the end of 2008. Assuming a further 12 months for
project financing and permitting, and 18 months construction, we envisage
first production by mid-2010.
Value proposition – trading at 280% discount to peer group
We have assessed Cape Lambert’s peer group of iron ore projects in
Australia to determine relative production and resource multiples. The
analysis suggest that Cape Lambert is significantly undervalued by some
280% on both a production and resource multiple basis.
The resource upgrade and advancement towards a completed BFS shifts
Cape Lambert into a new peer group of near-term producers. We
recommend the company as a BUY with a 12 month target price of 45p.
Only way the SP will reach $1 is if the sell a large portion to another DING!
cheers
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