Hot stocks to watchFe Limited (ASX:FEL) is another aspiring...

Hot stocks to watch

Fe Limited (ASX:FEL) is another aspiring producer (figure 6) looking to benefit from surging iron ore prices. The company has an enterprise value of around $20m and a 51 per cent interest in the Gold Valley Iron Ore Mining Rights Agreement over the Wiluna West JWD deposit — part of GWR Group’s (ASX:GWR) Wiluna West project — with a JORC indicated resource of 10.7 million tonnes at 63.7 per cent iron ore.

Figure 6: FEL share price (Source: CMC Markets, 20-2-2021)

The first shipment (figure 7) is due in September 2021.

Figure 7: Transport options to Geraldton for the JWD project share price (Source: FEL Corporate Presentation, January 2021)

The development plan is set out as follows:

Stage 1: Test pit, right to extract up to 300,000t, with FEL targeting commencement of mining Q1 2021.

Stage 2: Up to further 2.7 million tonnes to be extracted if economic to do so upon payment of option fee of $4.25m.

Stage 3: FEL has option to continue to mine any remaining economically recoverable JWD tonnes subject to payment of $3.50/t of iron ore.

The approval process appears on track for production in the September quarter this year, so assuming the iron ore price holds up, the project looks like it has a real chance.

Figure 8: JWD deposit development timeline (Source: FEL Corporate Presentation, January 2021)

The key will no doubt be transport costs, which given the 700km or so will be up around at least $60-$65/tonne (my estimate).

However, levering off GWR’s infrastructure should lessen the costs. Mind you $223/tonne iron ore (assuming no lump premium) leaves plenty of room to absorb the high transport costs.

Like Fenix Resources (ASX:FEX), GWR Group and Strike Resources (ASX:SRK), these sorts of remote, high-grade plays rely on high iron ore prices which are notoriously difficult to forecast. So, it’s anyone’s guess where they are going to end up, but assuming you have access to port space and decent grade ore, the numbers are more than compelling.

At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting, and corporate advisory roles.

He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998. Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada, and the United States.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of *.

* has not provided, endorsed, or otherwise assumed responsibility for any financial product advice contained in this article.