Hello everybody,Batavia were on a Roadshow in Germany last...

Hello everybody,

Batavia were on a Roadshow in Germany last week,where I was able to meet the new interim CEO Greg Bittar.
He did quite a convincing job in explaining the potential of the company.Along with the information from him i did some more research on the neighbouring projects to get a better picture.
So here are my first thoughts on the Roper River Iron Ore project:

1.The resource

...looks impressive (of course drilling will have to prove this)
BHP has already done some work on this in the past which suggests that we have indeed a lot of iron ore,with most of it being very close to surface, (which should translate in relatively cheap OPEX) Grades seem to be good as well ( again have to wait for some drilling for confirmation )
The exploration target of 400-500 does NOT include the two ELs 27411 and 26412,so i guess there is a lot of upside potential there,especially if you consider Western Desert has some proven iron ore directly east of BTVs licences and the iron ore from EL 24101 and 24102 seems likely to be continous through EL 27411.

2.The capital structure

has already or will change a lot due the aquisition of the project and the raising of money.
Taken together all the shares and options (most of which are exercisable at 0.135 AUD-so are in the money) will reach nearly 500 Mio.Half of these will go to the vendors at NAIO,so in reality this is more of a merger than an aquisition.
Very positive IMO is the placing of 20 Mio shares to the Chinese along with an offtake agreement,which establishes a first relation to a client,with very deep pockets :-)
The company looks to be cashed up sufficiently for the next months with more than 20 Mio AUD.Of course 10 Mio will have to go to NAIO in July,but some 4.8 Mio will be received from the Chinese.

3.Margin calculation

Capex will probably be well below 100 Mio AUD,but we have to wait for the scoping study for more details. Infrastructure would need to be increased (road to the railway,railway and later on the harbour at Darwin)

With prices for Iron Ore somwhere around 150 USD (and probably staying above 120 USD over the next years) I tried to get a grasp on the potential OPEX. Now here is a link to the Frances Creek project,which is situated along the railway line to Darwin.

http://www.territoryresources.com.au/projects/frances-creek-project.html

"...In November 2008 Territory initiated a major drive to increase efficiency at Frances Creek, aiming to deliver consistent production of over 2 million tonnes of iron ore per annum and targeting a long term operating cost of US$50 per tonne.
This involved a comprehensive Pit-to-Port review of the entire mining operation, and delivered strong results with the Company now exporting at an annualised rate of 2.2 million tonnes of high grade lump and fines product per annum at a cost of US$55 per tonne.
Territory is continuing to implement new initiatives to further drive efficiency at Frances Creek.
As at November 2009, total Indicated and Inferred Resources at Frances Creek were 9.5 million tonnes at 59.4% Fe with Probable Ore Reserves of 4.6 million tonnes at 59.9% Fe..."

Now they have a number of 50-55 USD/T. While their resource is much closer to Darwin (thus resulting in cheaper transportation costs) i think we can assume lower extracting costs at our project because of the sheer size of it.
Batavias targeted ~ 500 MT is of course another league than Frances Creeks 15 MT.
So an OPEX of 50 USD/T might be a first rough guide to calculate a margin.

If the targeted initial 2 MT/year can be reached by 2012 with a margin of 70-100 USD/T we would reach 140-200 Mio USD.Now generously substract some taxes,administration costs,managment fees,etc...
I guess we would still be above 100 Mio USD gains/year once production started.

Now this is stunning compared to a marketcap of 35 Mio as of today.

Conclusion:

I took a first position here as the project has some really impressive looking fundamentals.
On a global scale the recent troubles between the BIG Three in the Iron Ore market (Rio Tinto,BHP and Vale-responsible for some 70 % of worlwide production ) and China,the entry of a Chinese player into BTVs share registry might result in some take over speculation in the future.
I am a little worried though about ~ 200 mio options (where most are exercisable @0.135 AUD)
So time will have to tell if the option holders are willing to stay in for the long run or will be tempted to sell into an increasing shareprice.After all we are currently already at double the exercise price of the options.
But as the management intends to fast forward the project with a first JORC resource due in August and the scoping to be published in Q3 2010 i think there is hope that the existing share/optionholders will be patient enough to wait for production.In their presentation BTV states they want to increase production to 25 MT/year over 3-5 years.
Now this would be a multiplier of 12.5 compared to my margin calculation.Do the maths on this scenario for yourself...

Regards Wantedman