commsec analysis

STRATEGY ANALYSIS
Allegiance is focused on getting the underground Avebury nickel
mine in Tasmania into production. Despite production delays, first
ore is now scheduled for 1Q08. Initial production is forecast at a rate
of 8,500t of Nickel in concentrate per year. A second mill to increase
production over 15,000t Ni pa is likely to be implemented once
regional exploration targets are drilled and defined. Production is
scheduled for a minimum 10 years at a cash cost of US$2.20/lb. The
resource stands at 16.27Mt @ 0.97% Ni for 158,000t Ni.
Concentrate will be railed to the nearby Burnie Flats port, where it
will be shipped off to Jinchuan Nickel Group of China via an offtake
and partnership agreement. Allegiance's concentrate will command a
premium price because it is one of the highest concentrate grades in
the world, at around 22%.
Allegiance has a large tenement holding within the Avebury region
and is well on its way to identifying a large, low grade province.
Recent discoveries include Bison and Saxon. These new deposits
could potentially be the second production centre for AGM and will
be critical if production is to be expanded to 15,000tpa. Exploration
and expansion will likely be fully funded from production cashflow,
eliminating the risk to raise further capital. The company has recently
applied for a mining licence at the nearby Melba Flats copper-nickel
project. Further drilling will need to define a bigger resource before
this project could be economically mined.
Analysts are expecting earnings growth of 800% over the next two
years, as Avebury ramps up. According to the Aspect Value Model,
AGM is overvalued due to a low long term EPS growth rate.
(Last Updated: 04/10/07)