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 10 15 20 25 30 35 40 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
CFE Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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