euroz 50c

Comments Price Target: $0.50/sh
Flinders Mines has commenced a Defi nitive Feasibility Study on its 100% owned Pilbara Iron Ore Project. The study managed by WorleyParsons and is
scheduled for completion in June Q?12. The DFS will focus on the 15mtpa development option.
The PFS by Worley Parsons in early 2011 concluded the project is technically feasible and economically robust should it gain access to third party rail and port
infrastructure. Key fi ndings of the study include: production rate of 5mtpa with expansion option to 15mtpa, Mine life of 20 years producing 229mt in total at a
2.5:1 waste to ore ratio, initial capex of $488m, and expansion capex of $640m additional, cash costs of A$35/t FOB pre-royalty, Two ore types - a DSO BID fi nes,
and a benefi ciated DID fi nes in a 1.3:1 ratio, Product spec average 58.6% Fe, 5.5% SiO2, 3.2% Al2O3, 0.095% P, and 6.8% LOI, NPV of $2.2b (10% disc) assuming
long run price of ~US$105/t FOB and FX rate of A$1=US$0.96, and IRR of 41% ungeared, capital payback of 3.5 years from fi rst production.
We believe Flinders Mines will fi nd an acceptable 3rd party infrastructure solution that will enable development of its Pilbara Iron Ore Project. This is key
to crystallising value in the project. Our view is based on the: ongoing strong demand for iron ore in China, sheer scale, technical simplicity and location of
FMS?s project and successful precedent set by BC Iron?s JV deal with FMG to access their rail network.
The obvious prospects for a 3rd party access deal are with either RIO or FMG. The former is an existing operator nearby (19km) and the latter is in an
impending nearby operator at their Solomon Project (40km).
Anketell Pt port development will prove a catalyst for crystallizing value in Flinders. Several groups are vying for development of the Anketell Pt multi
user port project which will become important in Flinders? infrastructure selection. The API JV (Aquila & AMCI), Fortescue (FMG) and IOH are publicised
proponents of the port. The API JV has a more urgent need for development of the port than FMG, while FMG promotes a larger scale development.
The WA State Gov?t has indicated it intends to award the lead development role by year end and it wishes to avoid the mistake of confl icted interests as
occurred on Oakajee port development. This may lead to introduction of an independent 3rd party. It is still possible that other parties may yet become
involved in the Anketell port development which could create partnering possibilities for Flinders that are not currently contemplated eg Chinese interests.
We expect the mineable resource to grow. The PFS did not include some 110mt of CID resource that has since been identifi ed. In addition BID style targets
have potential to add substantial tonnes on the fl anks to the existing deposits. Drilling has commenced on these targets. We believe there is substantial
resource growth ahead.
Our valuation when grossed up with the capex to develop the project would equate to <$10/t of product. At our assumed iron ore price this would leave
some $30/t of profi t in the hands of an acquirer. We continue to believe that Flinders Mines PIOP would offer most value entirely in the hands of an existing
infrastructure owner who could gain effi ciency in terms of capital and operating costs moreso than Flinders.
The shallow, continuous and above water table nature of the deposits make the project very advantageous in cost reduction and ease of operation. We
understand ground water issues are a growing problem in managing Pilbara iron ore operations among all existing producers.
Investment Case
Our risk adjusted valuation of Flinders Mines Ltd is $0.50/sh.
We are confi dent that exploration drilling for BID targets will grow resources during the current fi eld season.
We believe the market has been overly dismissive of FMS chances of completing a transaction to develop and monetise the project. The location, scale and
technical simplicity of the project will see more corporate interest than Flinders has been given credit. Flinder?s open share register, and cashed up balance
sheet (~$36m) give it a strong position to deliver value for shareholders.
Flinders Mines is one of only two remaining small companies holding substantial iron ore resources in the Pilbara. Others such as United Minerals, Brockman,
Ferrous, Giralia, Warwick Resources have all since been acquired. Iron Ore Holdings is the only other remaining company holding a signifi cant asset.
This analyst declares that he has a benefi cial interest in Flinders Mines Ltd.
Top 20 Shareholders as at 25 August 2011
Shareholders Shares (m) (%)
1 National Nominees Limited 130.49 7.17
2 J P Morgan Nominees Australia Limited 91.47 5.02
3 J P Morgan Nominees Australia Limited 47.33 2.6
4 Zero Nominees Pty Ltd 45.93 2.52
5 Nefco Nominees Pty Ltd 36.41 2
6 Citicorp Nominees Pty Limited 32.20 1.77
7 Rmk Super Pty Ltd 26.08 1.43
8 HSBC Custody Nominees (Aus) Limited 21.72 1.19
9 Miss Shuohang Wang 21.41 1.18
10 UBS Nominees Pty Ltd 17.39 0.95
11 Gary B Branch Pty Ltd 16.10 0.88
12 Dempo Global Corporation Pte Ltd 11.94 0.66
13 Ian Drummond + Janice Drummond 9.67 0.53
14 Citicorp Nominees Pty Limited 9.61 0.53
15 UBS Wealth Mgt Aus Nominees Pty Ltd 9.18 0.5
16 Forsyth Barr Custodians Ltd 8.91 0.49
17 Mr John B Roberts 8.36 0.46
18 Dr Kevin John Anson Wills 7.57 0.42
19 Kirk Group Holdings Pty Ltd 7.25 0.4
20 HSBC Custody Nominees (Aus) Limited 6.86 0.38
TOTAL 565.87 31.08