Iron Ore Holdings (IOH. ASX; $0.72/sh; Mkt Cap $118m) – June...

Iron Ore Holdings (IOH. ASX; $0.72/sh; Mkt Cap $118m) – June quarterly report, progress being made on all fronts. BUY PT $1.90

•IOH recently released its Q4 quarterly report. With the commercialisation of the Buckland Project well underway and mining approval at Iron Valley expected imminently we expect several high impact catalysts which should trigger a re-rating in the stock.
•Final mine approvals for Iron Valley expected imminently, with IOH not expecting any delays given the success of all approvals to date – both from a mining and environmental perspective. The approval will trigger the start date for Mineral Resources (MIN) to bring Iron Valley into production within 6 months are start making mine gate payments to IOH.
•Mineral Resources will develop and operate the Iron Valley mine at its own costs within 6 months of IOH receiving final mining approval, which is expected to occur in the mid-year, and buy a minimum tonnage of ore produced from IOH at the mine gate. This could provide substantial cash to IOH in 2014 to assist with co-development funding requirements for Buckland Project or provide an opportunity for capital returns to shareholders.
•Our conceptual model indicates that mine gate sales could conservatively generate $30m EBITDA in CY14 as production ramps up to 2Mtpa in the first full year of operation (US$115/ Fe & AUD 90c). IOH have indicated a run-rate of 4mtpa could be achieved from year 2. Should 2mtpa be achieved in 2014, this would put IOH on an EV/EBITDA of just 1.3x vs 3-4x for a producer.
•Marked progress has been made at the Buckland Project during the quarter with the key milestones outlined below;
- Environment approvals for the development of a mine at Bungaroo South, the haul road and its associated infrastructure was received on 22 July 2013;

- Federal Government approval received for the proposed development of a 20Mtpa transhipping facility at Cape Preston East;

- Definitive Feasibility Study key design activities 70% completed;

- Seven non-binding Letters of Intent received from reputable Chinese steel producers, covering more than 70% of the planned production in the first five years. (More than 22Mt of planned production of 30Mt) and

- Macquarie Capital appointed as financial advisors to progress financing options with a number of interested local and international parties.

•The Buckland project continues to be de-risked with little to no value of the progress being made reflected in the share price. We believe the key catalyst in unlocking the value of the Buckland Project, and a re-rating in the share price, will be securing a JV development partner to assist with project funding which we expect should be concluded in 2HCY13 ahead of a final investment decision expected late CY13. Our un-risked valuation of the Buckland Project is $280m vs. current EV of $41m
•We continue to rate the stock a STRONG BUY with a clear path to cash flow imminent. Further news on a funding and development option for Buckland project is also expected to follow in the 2H of 2013 to provide a second catalyst to re-rate the stock above $1/sh. Cash backing remains a healthy $75m, the register is very tight in the top 20 with 75%.
•We rate the stock a BUY PT $1.90

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