euroz securities article

From Euroz Equities Resources Quarterly Nov 2009

They rate as buy with a target price @ $0.25 st

Flinders’ 100% owned Pilbara iron ore project (E47/882 Blacksmith, and E47/1560 Anvil) is located in the Hamersley Ranges 70km northwest of Tom Price. Tenement holdings in the vicinity are dominated by Rio Tinto and Fortescue Metals and both companies have signifi cant deposits adjacent.
Drilling on Blacksmith commenced in July 2008 and resources currently comprise 511Mt @ 55.4% Fe JORC inferred. The details of the resources are shown on the opposite page. Drilling is currently on the Delta deposit with a focus on infi ll to indicated status and BID targets at the deposit margins. Delta (one of fi ve deposits on the Blacksmith tenement) contains the highest potential tonnage of BID material. Drill testing of the BID
extensions and additional BID targets are part of the drilling campaign to defi ne an Indicated Resource at Delta.
A revised resources estimate based on the current phase of drilling is expected in March Q 2010, including a subset of higher grade material potentially capable of supporting a DSO operation. There are two key styles of mineralisation: CID (channel iron deposit, mainly hematite) which forms the bulk of the existing
resources; and BID (bedded iron deposit, mainly goethite, Brockman style) which has only recently been identifi ed.
The BID occurs at the base and lateral margins of the CID deposits. Because of this much of the BID mineralisation is not yet closed off by drilling and will be the subject of specifi c targeting in 2010.
Flinders has commenced a pre-feasibility study through Worley Parsons which is due for completion in Sep Q’10. The study may allow the decision to proceed with a fast tracked DSO development by the June Q’10. A DSO operation could be in production in late 2012. This style of development is predicated on negotiating an access arrangement with an existing rail/port owner.
Flinders has commenced discussions with the obvious parties RIO, FMG and AQA. Results of metallurgical testwork on benefi ciation will be known in March’10. Success will indicate the upgrading potential of
the large CID resource inventory into marketable product with low impurity. Phospherous is already acceptably low, however a reduction in the silica and alumina levels would be economically signifi cant. This could then potentially underpin a long life high volume development capable of supporting expenditure on infrastructure for a stand alone mine. Similar benefi ciation is already in practice by producers in the Pilbara.
Delta deposit is attractive because the mineralisation is shallow, fl at lying, largely above the water table, with a potentially low waste:ore ratio, and is closest to the obvious infrastructure options. Both styles of mineralisation are present which will allow
blending to produce desired specifi cation.
Flinders Mines intends to divest its non-iron ore interests in diamonds and phosphate into a new ASX listed company in which it will retain a signifi cant shareholding. Flinders will retain its 100% Canegrass magnetite iron ore project located in the Midwest
region of WA.
Investment Case Flinders Mines owns 100% of one the largest iron ore resources in the Pilbara excluding those of the big three (BHP, RIO, FMG).
We expect the resource inventory to continue to grow throughout the next year as infi ll drilling at Delta, fi rst pass drilling at Anvil and BID specifi c drilling on deposits on Blacksmith contribute.
The key value adding milestones to observe will be the Delta resource upgrade due in Mar Q’10 with particular attention on the higher grade subset, metallurgical testwork on benefi ciation of CID ore, completion of the DSO component of the pre-feasibility
study, and progress on negotiation with potential providers of access to infrastructure.
The corporate apetite for strategically located substantial iron ore assets in the Pilbara over the last 6 months will remain a prevalent theme. Flinders share register is totally independent and opportunity for a party to build a strategic stake is possible.
There is precedent for competition between Chinese and existing producing incumbents eg United Minerals Corp. Further, the impending RIO/BHP iron ore JV will lead the WA government to insist on more progress on third party access.
Flinders has the resource quality and scale, and strategic location that will mean it cannot be ignored. The evolution of the project over the next year will not only build fundamental value, but increasingly place it on the corporate radar.