Wonder if Fosters will make a reassessment? Whilst the production has gone down from 25MT to 17MT their assumptions on opex were way higher than the PFS ($31/t v $40/t).
Valuation from Fosters - assumptions (June 09)
We have modelled BRM ramping up to 25mtpa by 2015 and assumed capital cost and operating costs of $1.2b and $40/tonne FOB respectively. Using long term prices of $0.95/Fe unit and $0.82/Fe unit for lump and fines respectively and an AUD/USD exchange rate of 0.75, the Marillana project potentially generates an annual EBITDA of close to $650m, has a current valuation of ~$12.00/share, and an IRR of greater than 30%. The capital cost of the port is not included in the analysis above, but is included as part of the operating cost of the port handling fees.
While the project is in the early stages of development, the progress to date BRM has made on rail access and port development is very positive. We expect to hear further encouraging announcements on rail access early next year. In anticipation of positive news on this front, a nearer term catalyst for the stock could be further corporate activity, either at the parent level or a sale in a minority stake in the project. Encouraging Pre-Feasibility Study results in July 09 may also act as a short term catalyst for the stock.
BRM has ~$100m in cash, no debt and a Market Capitalisation of ~ $160m. Despite the risks, we don’t believe the risk/reward profile reflects the current progress and position of the Marillana project and believe the company will significantly re-rate over the next 12 months. We have set our 12 month price target to $3.20/share, reflecting a 75% discount to our one year forward DCF based valuation.
