broker report

Hi all,

Thought i would post this broker report by Southern Cross Equities. I dont know if this has already been seen but it is a good read. Below is article:

" Cabral Resources, (CBS) ? Focused around infrastructure in the emerging province of Bahia.
Cabral Resources, (CBS), is an early stage iron ore explorer that provides entry level exposure to the development of a new iron ore province in Bahia that is being opened up by government funded infrastructure. At the current price of 16cps, CBS has a market cap of $39m, no debt and $17.2m in cash, (post the acquisition of the Brazilian tenements). In addition the company has an interesting uranium tenement area in Western Australia adjacent to BHP?s Yeelirrie project and a unique joint venture with China Railway Materials Commercial Corporation, (China Railway).
It is early days for Cabral with the aero-mag due to be flown in the next quarter which will be followed by an aggressive drilling program, however, if they are successful with their stated goal of proving up 350mt to 600mt of iron ore from the existing leases and then extending this to in excess of 1bt via possible acquisitions, then Cabral is a stock that has the potential to be multiples of the current price given a market cap of $39m and enterprise value of $22m.
The 9 iron ore tenements being acquired in Bahia Brazil are within close proximity to proposed rail and port infrastructure under construction and to be funded by the Brazilian government. With exploration and regional acquisitions, some of which have already been identified, the overall plan is to become 4 to 10mtpa iron ore concentrate producer by 2015. In addition the company has identified the potential for DSO hematite ore which will be pursued concurrently and if successful will provide the opportunity for early production and cashflow.
The strategy of the company is simple and involves consolidating the maximum ground position possible in close proximity to the East/West rail link currently under construction. The construction of this rail which is planned to intersect the North/South rail is an excellent example of the proactive nature of the Brazilian government in committing to new infrastructure programs.
The key mover and shaker in the region is the GBP12bn, UK listed, Eurasian Natural Resources, (ENRC). This is a fascinating, growth oriented, mining company backed by Russian money and listed in London. One of our operatives met with them in London recently to learn more of their strategy in Bahia and what it may mean for Cabral Resources. One of the key projects for Eurasian is the BML project which is similar to that which Cabral is proposing at Morro Do Gergelum. It is located near Caetite approximately 10km from the East-West Railway currently being built by the government. The bankable feasibility study on this project was completed in July 2010. It is tabled as being 19.5mtpa of
concentrate capacity and capex is estimated at US$2.1bn with production due to commence in 2013. The JORC-compliant resource is 1.8bnt grading 32% measured and 932mt indicated grading 35% Fe. The project is 523km to the
port terminal at Ilheus which they plan to construct privately. Construction is pending port environmental licence and installation licence and commencement of the rail link.

To me this is the key comp for CBS. ENRC paid $976m to acquire the project and what was interesting to note was that they said that they have one eye over their shoulder on what Vale are up to as they are currently absent from the region. Obviously, key in ENRC's thought process is the fact that infrastructure is being government funded. ENRC were very keen to hear what CBS were up to and it just makes me think that this company may have landed on quite an interesting strategic position in a new region that is opening up.
Cabral has a joint venture with the Chinese state owned enterprise, China Railways, which has the potential to assist with project funding and infrastructure solutions to successfully develop Cabral?s tenements.
The immediate work program is for:
? Aeromag surveys to identify a more accurate exploration target at Morro Do Gergelim and other tenements
? Follow on acquisitions of both magnetite and potential DSO ore tenements to add further critical mass to Cabral, (target 1bt plus overall of potential)
? Results of exploration drilling towards the definition of a JORC compliant resource at Morro Do Gergelim and other tenements
? Announcements in relation to the development of the Brazilian East-West railway line and port infrastructure
In our view Cabral is a simple story. Cabral have identified between 331mt to 644mt of targeted exploration tonnages and clearly at an EV of $32m the EV/resource tonne at the low end of the target (331mt) is sub 10c per resource tonne, and if they find 644mt it is sub 5c per resource tonne, if the strategy is successful.
The other comparison that we feel is useful is Centaurus (CTM), which we also like and recommend with a price target of 20cps. They currently have a 126mt of JORC compliant resource spread across multiple tenements in the iron quadrangle (south of CBS) at a grade is 30.5%. CTM?s strategy is to sell their ore internally, at approximately 60% of China prices, to the local steel mills. CTM?s current market cap is $82m. Compare that to CBS at $39m who have a port and rail solution, access to funding partners and targeted minimum tonnages of a minimum 350mt with expected grade of ~32-36% and you can see the potential upside if management are able to execute successfully.
Critical is management and we are pleased to see Chris Robinson confirmed as a director. Chris is an industry veteran with 37 years involvement in the Australian and international iron ore industry, including senior technical, operating, management and customer liaison roles.
Post the recent raising, well known resource investor, Passport Capital has lodged with 9.64% which we see as a sound endorsement of the company.
Given that Sovereign risk is back on the agenda after recent events in Africa it is worth considering how Brazil fits into this as it is here that Cabral is firmly focused. Brazil is the fastest growing economy in South America, it has a vast population base of 200m people and is blessed with an abundance of natural resources. Importantly it is stable and has a well developed mining code and a mining industry that is older than ours in Australia. The government is pro growth and is investing US$830bn infrastructure to open up industry and opportunity. In 2010, the economy maintained a steady growth rate of 7.5%, the highest annual rate since 1986 and is forcast to grow at 7% in 2011. The country is stable and increasing is being recognised as a great place to do business. In 2014 Brazil is hosting the FIFA World Cup and in 2016 the Olympic Games, those 2 events basically guarantee a commitment to stability, growth and investment over the immediate future.
Brazil currently exports more than 300mt of iron ore and is the world?s largest producer of Merchant Pig Iron and is a top 10 global steel producer in its own right. Cabral is emerging, however it has tremendous leverage to the Brazilian growth story which we believe will deliver excellent shareholder returns.

Disclosure: SCE acted as sole lead manager to the placement of 125m shares at 20cps and received a fee.

James Unger
Executive Director, Equity Capital Markets."

End Quote


...looks all good

Marvdog