gindalbie a spec buy

Iron Ore Developer Gindalbie A Spec Buy, Says Intersuisse
FN Arena News - September 04 2007

By Chris Shaw


It has been a busy few days for junior iron ore play Gindalbie Metals (GBG) as the company has announced the results of feasibility studies on two projects and a placement with Anshan Iron & Steel Group (Ansteel) that makes the Chinese company the group’s second largest shareholder.


Intersuisse, which rates the stock as a Speculative Buy, expects both the Mungada hematite project and the Karara magnetite project will generate high internal rates of return and with the company having Ansteel as a 50/50 joint venture partner is positive on the chances of the company with respect to successfully developing both projects.


The Mungada project will be first cab off the rank and is expected to ship its first ore in the first quarter of 2009, the project estimated to produce three million tonnes of ore annually all of which will be taken by Ansteel.


The broker estimates a net present value on the project of $79.6m, while anticipating it will generate around $184m in cash flows over its scheduled six year life, meaning some meaningful cash flows as the company builds the larger Karara project. There is scope for the project life to be extended through exploration success.


Karara has an estimated project cost of around $1.6 billion and is forecast to have initial production of eight million tonnes annually, half of which will go directly to Ansteel and the other half to be converted into blast furnace pellets before being sold to that company.


Production here is tipped to commence in the first quarter of 2010 with sufficient ore for a mine life of at least 25 years, the broker estimating the project should generate an annual after-tax cash surplus of around $360m once it hits full production.


Aside from the opportunity to secure material Ansteel is clearly confident in the company’s outlook as it recently subscribed for $39m in new shares, albeit at a significant discount to the current market price.


Following the placement Gindalbie now has $60 million in cash on hand, which will help with the developments costs of Mungada.


Shares in Gindalbie have been on a tear of late, the stock having risen from 80c in the middle of August to more than double that now and over the past 12 months the shares have ranged between 40c-$1.98.


Currently no brokers in the FNArena database cover the company, but with a market capitalisation of almost $800m at current prices it would seem likely the stock will begin to attract more attention.


Shares in Gindalbie today have stabilised after the recent strong gains and as at 2.00pm were trading down 2.5% at $1.795.