euroz analysis (buy, price target: $4.00)

Sphere Minerals Ltd (SPH $2.53) Buy
�� Price Target: $4.00/sh
�� Reason For Update: A magnetite iron valuation yardstick - ENRC buys remaining 50%
in Bahia Minerals BV for US$670m

�� What we know:
ENRC is acquiring the outstanding 50% of Bahia Minerals BV from Zamin Resources in
Brazil for US$670m. Bahia Minerals has a 1.8bt magnetite iron resource near a railway
being built by the Brazilian Govt. This equates to US$1.30/t of resource.
Sphere has 750mt (attrib) resources combined in its El Aouj and Askaf projects, plus
2,700mt at the Lebtheinia project. All projects are adjacent to existing rail and port
infrastructure with open access. All projects have further resource upside, with Sphere
stating combined attributable �Exploration Target� of an additional 830mt � 1,175mt.
Xstrata�s $2.50/sh cash offer for Sphere effectively values a combined Askaf +
Guelb el Aouj inventory at US$0.50/t and ascribes nil value to Lebthenia.
Xstrata�s offer for Sphere Minerals remains conditional (90% acceptance, confi rmation of
standing of tenement EL#C609, customary no material adverse effects) and an update
on the status of the defeating conditions is due by 28th Sep. The offer is currently
scheduled to close on 5th Oct.
To date Xstrata has received acceptances for just 6.85% of Sphere Minerals, which includes
5.4% from the unanimous support of the board of directors. The offer has been open for
two weeks since the target statement release, and has another two weeks to run.

�� What we think:
We maintain that the Xstrata offer for Sphere Minerals grossly undervalues its true worth.
Clearly the current offer from Xstrata is failing to convince shareholders of its merits
given the low acceptances to date.
At our valuation target of A$4.00/sh the combined Askaf & Guelb El Aouj would be
valued at US$0.78/t (and nil ascribed to Lebthenia). Even this appears cheap relative to
the ENRC-Bahia Minerals deal.
Our valuation is based on a risk adjusted NPV of the Askaf project (Euroz valuation
A$406m). We use this value to also derive a value for the similar (wrt proximity, geological,
metallurgical, infrastructure) Guelb El Aouj project (Euroz valuation A$169m). The larger
and well located but lower metallurgical quality Lebtheinia project has an arbitrary
A$0.03/t value ascribed (A$82m). cash comprises $39m.

Investment Case:
Our valuation is $4.00/sh.
Both our valuation and the relative value implied by the Bahai Minerals / ENRC deal leads
us to believe there is scope for a competing bidder and/or an improved offer from Xstrata
for Sphere Minerals.


Just thought this would be of use to most SPH holders who are worried about the stagnating of the share price these few weeks.