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India Resources Limited (IRL)
India Resources Limited ( IRL) was listed in mid-2007 with an objective to give
investors an early exposure to the emerging Indian resources sector. IRL raised $10m
through their IPO in early 2007 and a further $18.8m in late 2007.
The flagship project is the Surda copper mine in Jharkhand, West of Kolkata
(Calcutta) which was refurbished in 2007 and is anticipated to ramp up to full
production in May 2008. IRL also has a number of green-fields exploration projects
such as the Aravalli base metals project in Rajasthan, and three diamond exploration
projects at Bhandara, Bundelkhand and Chigercherla. We initiate coverage with a
Speculative Buy Recommendation.
Key Points
IRL recently released production data from the ramp up phase for the March quarter.
Mined tonnages of 37,816t @ 0.9% Cu producing a concentrate of 1335t @ 23.5% Cu
were reported. This is in line with IRL s stated ramp-up production targets, with full
production at scheduled rates of ~36,000t/month commencing in May 2008.
During 2007 the company re-established power, overhauled screens, the primary jaw
crusher and 3 of the 5 available ball mills. IRL is also installing a new floatation cell in
addition to new cyclones to replace old cyclone classifiers.
As at the end of March, six cleaned out stopes were being mined with four new stopes
brought into production during the quarter.
Diamond drilling underway to classify the underground resources under Australian
JORC classification by 2Q2008.
NITON XRF scanner results at Wari prospect at the Arivalli Project has returned initial
results from drilling of [email protected]% Cu. Drilling at Sindesar Khurd prospect returned
NITON XRF results of [email protected]% Zn
IRL holds a suite of diamond exploration leases. The Bundelkhand project consists of
two reconnaissance permit 60km west of India s only producing diamond mine at
Panna and ~40km North of Rio Tinto s Bunder diamond project.
From total sales from the Surda Project of $159.4m, we estimate total EBITDA for the
base case scenario at $49m, over a seven year mine life. NPAT totals $22.4m. EPS
rises from 0.3 cps in 2008 to a maximum of 2 cps in 2009, on production of 4500t per
annum on an undiluted basis. Current undiluted issued capital is 162.7m FPO
A decision on the decline development proposal is due in 3Q2008.
We recommend IRL as a Speculative Buy to risk tolerant investors seeking
investment into a company with an early entry into the Indian resources sector. We
have a valuation of $0.21/share which takes into account the current production
scenario at Surda copper mine, plus the company s investments and cash reserves.
5th May, 2008
RECOMMENDATION:
Speculative Buy
VALUATION:
$0.21 per share
6 month vol 77.1 m
12 month share low $0.10
12 month share high $0.32
Market Risk High
Liquidity Risk Low
Infrastructure Risk High
Country Risk High
IRESS & DJC Research
ISSUED CAPITAL
ASX IRL
Share price $0.115
Mkt cap.1 $19.3m
Ordinary shares on issue2 168.1m
1 Undiluted Source: IRESS
2 Includes Canadian issued shares and warrants
3 Various dates & Strike prices
DIRECTORS
Eoin Rothery Managing Director
Andrew Simpson Chairman
Michael Kiernan Vice Chairman
Craig Readhead Non Exec Director
Arvind Misra Director Operations
David Humann Company ecretary
Source: IRL
MAJOR SHAREHOLDERS
Territory Resources 9.50%
Crawley Investments 6.11%
ANZ Nominees Ltd 5.30%
Captain Shailendra Singh 3.06%
Source: IRL
12 MONTH PERFORMANCE
Source: IRESS
James Wilson
Resource Analyst
+61 8 9263 5276
[email protected]
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Corporate Overview
India Resources Limited ( IRL ) was listed in mid-2007 with an objective to give investors an
early exposure to the emerging Indian resources industry. IRL raised $10m through their
IPO in early 2007and a further $18.8m in late 2007.
IRL has a number of projects throughout India. The flagship project is the Surda copper
mine in Jharkhand, West of Kolkata (Calcutta) which was refurbished in 2007 and is
anticipated to ramp up to full production in May 2008. IRL also has a number of green-fields
and brown-fields exploration projects such as the Aravalli base metals project in Rajasthan,
and three diamond exploration projects at Bhandara, Bundelkhand and Chigercherla.
IRL has an experienced management team with a track record of involvement in
successfully financing, developing, constructing, commissioning and operating mining
projects.
Fig 1 IRL Indian projects Source: IRL
Surda Copper Project
IRL has developed an alliance with Hindustan Copper Limited (HCL), essentially a minerals
arm of the Indian Government which owned and operated the Surda copper mine. Surda is
the second largest mine in a group of six within the region known as the Indian Copper
Complex which was previously operated by HCL. Resources at Surda are non-JORC
historic resources which were estimated in 2004 to be 26Mt @ 1.2% Cu. IRL has negotiated
a special vehicle through its parent company Monarch Gold to recommission and operate
the Surda Mine and concentrator at Mosaboni and to deliver concentrate to HCL. Under the
obligations of the agreement, IRL is to guarantee copper in concentrate to HCL by June
2008, and also has a fixed sales price for the concentrate being sold to HCL. The licence is
valid until 2014. All DJC modelling is based on this tenure period for our base case
evaluations.
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The Surda copper mine was in production from 1956 to 2003. The mine produced a total of
8.98Mt at 0.95% Cu. The mine operated two production shafts and one ventilation shaft, with
variable mining methods used during the operation depending on the width of the ore lodes,
including room and pillar, horizontal cut and post pillar methods. Mining was ceased in 2003
due to depressed copper prices and the Surda operation was shut down. The Masobani
Concentrator is situated 5km southeast of Surda and was an asset included in the deal with
HCL. It seems that the concentrator was shut down mid-process and a number of the mills
and floatation cells were not cleaned out, so ore remained in the system at all points and
had caused some damage over time.
Fig 2 Surda Cross Section Source: IRL
IRL has embarked on a significant cleanup and refurbishment process over the last 12
months reinstalling and repairing most of the corroded floatation cells, refurbishing ball mills
and conveyors. Reported capacity is in the order of 900,000tpa with the company aiming for
production of ~450,000tpa and a final product of 4500t of copper concentrate per annum.
During 2007 the company re-established power, overhauled screens, the primary jaw
crusher and 3 of the 5 available ball mills. IRL is also installing a new floatation cell in
addition to new cyclones to replace old cyclone classifiers.
Surda Geology
Geologically the deposit mineralisation is developed over a 2.2km strike and is currently
defined to a depth of 474m which is the lowest level of historical mining. Mineralisation is
chiefly chalcopyrite and pyrite with no significant other copper bearing minerals present. The
mineralised zone is generally tabular, 6m thick on average but can vary up to 20m thickness,
generally dips 30-35 degrees to the north-east with mineralisation predominantly hosted
within chlorite schist. Mineralisation is currently open at depth.
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Mining at Surda
Mining is currently in progress at Surda and has been ongoing since November 2007.
Initially the company spent several months dewatering and refurbishing the underground
mine, refurbishing headframes and generally bringing the mine into a workable state to
Australian standard practices after it had remained dormant for some 4 years. The current
hoisting capacity at the mine is ~500,000tpa from two shafts with concentrator capacity at
1,700tpd. IRL s target production is approximately 450,000tpa.
Mining is currently being carried out on blocks 7,14,18, 30, 32 and 37.
Fig 3 Mining blocks and underground mine schematic Source: IRL
IRL recently released production data from the ramp up phase for the March quarter. Mined
tonnages of 37,816t @ 0.9% Cu producing a concentrate of 1335t @ 23.5% Cu were
reported. This is in line with IRL s stated ramp-up production targets, with full production at
scheduled rates of ~36,000t/month should commence from May 2008.
As at the end of March, six cleaned out stopes were being mined with four new stopes
brought into production during the quarter. A diamond drilling program is also underway in
order to more accurately define resources with the aim of producing a JORC compliant
resource from historical holes sometime in 2H2008. The company reports that they are
currently 20% ahead of scheduled ramp up.
Fig 4 Surda March quarterly production Source: IRL
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Decline Feasibility
IRL recently announced the identification of a historical geological ore reserve (Non-JORC)
of 7Mt @ 1.2% Cu which forms part of HCL s original estimate of 26Mt @ 1.2% Cu (non-
JORC historic resource) calculated in 2004. The ore model is likely to be drilled out with
more detail, but effectively underpins a 7 year expanded case mine life and is forming the
basis of a decline feasibility study which aims at doubling annual production. This in our view
would significantly add value to the project moving forward. A schematic of the proposed
decline is shown in Fig 3.
Copper demand
The three main drivers to copper demand are the performance of the developed economies;
China; and mine supply. Consistent with the economic outlook above, the US, Europe and
Japan are likely to reduce copper demand as their economies slow. This is particularly so in
the ailing housing sector in the US, whose economy accounts for 13% of global copper
demand, according toFortis Bank.
Working in the opposite direction is the influence of China which has provided much of the
increased demand for copper, as in most metals. A slowing economy in China means
growth at sub-10% levels is still likely to provide significant support for copper prices. The
recent spate of bad weather in China caused shutdowns to the copper smelters which have
resulted in LME stockpile draw-downs and a tightened market, sending copper spot prices
above US$8,000 per tonne a recovery of 29% from the recent lows in mid December
2007. A recovery that seems to have gone almost unnoticed by the investment community
which has been more focused on recent events in the financial sector.
Fortis estimate that copper prices could slump to 40% of highs seen in 2007 (to US$5,250/t),
however we believe the combination of a still growing China and supply shock is likely to
keep copper prices above that level. Power supply issues in Chile have recently resulted in
reduced output in the country s major copper mines. Supply shock would include the effect
of political upheaval and policy change in Africa. Recently both the DRC and Zambia, both
major producers of copper, have released details of policy change in their respective mining
industries. The DRC want higher percentages of projects whose agreements were
negotiated prior to the new mining code legislation
The upshot of the likely continued effects of supply shock lead us to believe the copper price
will remain at high levels for much longer than many expect. We do not believe copper
prices will fall to much lower than US$6,000 in 2008 and 2009, but may reach technical
support at US$5,500 per tonne on short-term dips.
Regional Projects
IRL has a number of regional projects throughout India, these are at various stages of
development.
Arivalli Project
Arivalli is located in Western India near the town of Udaipur, Southeast of New Delhi. IRL
has 2 reconnaissance permits (RP) which were granted for a period of 3 years back in
October 2005, so renewal is likely to be negotiated later in 2008. The first permit is 50km
northeast of Udaipur and the second permit is 20 km southeast of Ajmer. Compilation of
Geological Survey of India (GSI) summary reports has identified several highly prospective
areas for copper, zinc, lead as well as gold lying within the Relmagra Reconnaissance
Permit. HCL has excised areas that contain existing resources within the lease.
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Fig 4 Arivalli Projects Relmagra RP Source: IRL
Scout RC drilling of the project was conducted in August 2007 with best results to date of
[email protected]% Cu within a coincident north-north eastern trending zone some 450m long at
Sathuddia. IRL intends to drill it s top 5 ranked Arivalli targets during 2H2008. The company
has decided to build a purpose built specialised light weight multipurpose drill rig (capable of
RC and diamond core work) supervised by Swick Drilling at a cost of ~$200,000 which will
be used in the 2008 drilling program.
Scout holes have been drilled to date at Relmagra RP on Sathuddia, Wari and Sindesar
prospects, with chemical results from the initial program listed below at Sathuddia. A further
14 holes were drilled at Wari with highlights of [email protected]% cu recorded using the portable
XRF Niton scanner however we await confirmation of the result with chemical assays which
should be returned by 2Q2008. Drilling at Sindesar Khurd returned NITON XRF results of
[email protected]% Zn, however we await the results of these samples by chemical assay for
confirmation also.
Fig 5 Drill results from Arivalli Project Source: IRL
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Diamond Exploration
The company owns 3 diamond leases within India. The Bundelkhand, Bhandara and
Dharwar projects throughout northern, central and southern India.
Dharwar comprises five prospecting licences totalling ~25km2 located in the Wajrakarur
kimberlite field in Southern India. IRL was granted the leases in late 2007.
The Bundelkhand project consists of two reconnaissance permits 60km west of India s only
producing diamond mine at Panna and ~40km North of Rio Tinto s Bunder diamond project.
The Bhandara Project is at the most advanced stage of development. The project includes
seven granted reconnaissance permits covering an area of 8,044km2 in Western Orissa. A
further 3 applications for RP s in the neighbouring state completes the project area of just