After viewing the Marillana deposit as a stranded asset there is now light at the end of the tunnel with negotiations for aninfrastructure deal with FMG progressing well. While FMG will likely strike a deal to blend Marillana’s higher grade, lowerphosphorous product with its Nyidinghu ore, the real prize will be access to BRM’s 18.5Mtpa port allocation at Port Hedland. BRM’s share price fortunes however have been dictated by an unsolicited scrip-based take over offer Wah Nam InternationalHoldings (WNI) which has recently gone unconditional. WNI has 43% of BRM, the offer closes on 16 May (unless extended)and we believe the new major shareholder could prove a major distraction to BRM’s development plans. A key risk for ourinvestment thesis on BRM. Our valuation for BRM is based on an NPV for the Marillana project which incorporates 40Mtpa of beneciable ore mined for 17Mtpa of product. We have used the DFS upper estimate for capital cost of A$1.9bn. Our estimatesassumed this is funded via a $2.18bn capital raise on a 60/40 debt to equity basis in the coming 12 months (dilution of NPVfor equity raise at an assumed $4.00/sh). We maintain our BUY recommendation with a price target of $6.31/sh. BRM remains cheap on valuation although WNI actions present a risk to a mid 2013 start up for the project. Brockman Resources Limited BRM ($4.10) Recommendation: BUY WNI could prove a distraction Analyst: Alex Passmore, Gary Watson
BRM Price at posting:
$2.40 Sentiment: None Disclosure: Held
