hawsons could be truelly massive

OVERVIEW

So Hawsons is shaping up to be the driving project behind CAPs prosperous future. In December we will get a better idea of what is under the ground, but all signs are pointing towards proving up 1Bt of iron deposit by the end of 2010, and a potential of much higher volumes in due time once further drilling has been completed. Simply put, the deposit could be massive, but we all realise that the quality of the iron isn't exactly cutting edge. To get your head around this, comparing CAPs potential resource to another company's makes sense.

One of the best known magnetite miners listed on the ASX is GRR. I think it's timely that we have a yardstick to weigh up what we could be looking at. It is important to remember that CAPs magnetite grade is expected to be far lower than GRRs, but the shear size of our deposit is a massive plus.
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GRR - GRANGE RESOURCES

Market Cap - $800M

Cash - $97M

RESOURCES

Savage River (100% owned)

# 2.3Mtpa (potential of up to 2.9Mtpa)

# Mineral resource of 306Mt magnetite at 52.3% DTR

# Ore reserve of 119Mt magnetite at 51.2% DTR

# located in northwest Tasmania

Southdown Project (70% owned)

# set to open in 2014

# targetting 10Mtpa

# Mineral resource of 654Mt magnetite at 36.5% DTR

# Ore reserve of 388Mt magnetite at 35.5% DTR

# located in south west Western Australia
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CAP - CARPENTARIA EXPLORATION

Market Cap - $45M

Cash - $20M

RESOURCES

Hawsons (20% Owned)

# targetting 20MTpa

# conservatively targetting a mineral resource of 1Bt at 19% DTR, with 'potential' for up to 5.8Bt
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SUMMARY

So basically, if you run the percentages, you have GRR currently with a marketable deposit of 212Mt at Savage River and up to 360Mt at Southdown.

Now CAP, (with a 1Bt deposit and 19% DTR) would have a marketable deposit of 190Mt. However, if you are a believer of Nick's word, and we get a deposit in that target of 3.5Bt-5.8Bt, then we could be looking at a marketable deposit anywhere from 665Mt to 1100Mt. Thanks to our JV with BMG, we have offloaded 80% of the project in return for funding other project exploration. Therefore, depending on the results of the JORC and further drilling CAP would own a 38Mt(Low), 129Mt(Average), 220Mt(High) marketable deposit at Hawsons. Throughout the rest of the project, CAP also has the capacity to be credited a further $68M through the JV.

Therefore we can conclude that GRR has a total marketable deposit of 572Mt, and their market cap I feel is extremely undervalued at present. I sold out recently purely because I needed to free up some cash, but if their Southdown project gets up and running, then I see no reason why their current market cap of $800M can't be pushed further towards $3B in the next few years (I used some rough back of the envelope figures to get this value).

CAP 'owns' a potential marketable resource deposit ranging from 38Mt up to 220Mt with a mean of 129Mt. If you take that average of 129Mt and run a ratio with GRRs deposit of 572Mt, you could get CAP being valued at up to $670M when Hawsons is going all guns blazing. That is before I factor in the extra $68M to be deposited by BMG. Now on the face of it this may seem a bit 'optimistic' but I think this figure is a real wake up call to how big Hawsons could be for CAP.

Now I encourage you to be critical of my calculations, and, after all, we don't actually know what we have in the ground yet, but by just running the averages, CAP has the potential to be worth an aweful lot of money considering what the market prices it at at the moment. In the perfect world that we don't need dilution (which is unlikely), Hawons being worth $670M would equate to a share price of $7.20. I feel this target could be met in 5 years as Hawsons would be a producing mine by then.

For what it's worth, doing the same calculations with the low (1Bt) and high (5.8Bt) estimates of our deposit gives a share price of $2.05 and $11.93 respectively.

Let's not forget that we have those smaller projects running as well as our coal project with GUF which I feel will be a pretty profitable exercise. These projects would add further value to CAP.

I personally feel $7.20 in 5 years is an achievable target provided that we do the basics right. Recall that I have attained this figure by running some quick figures on GRRs revenue and comparing it to what CAP have, so it might not be entirely correct, but hey, that's a nice target.

To some, this figure might be a bit overwhelming and perhaps a bit optimistic, but I strongly feel that CAP could be worth this just by purely running it up against one of the leading magnetite miners in the industry. Again I reckon constructive criticsm is the best form of learning so if you have any grips with my figures, make your thoughts be known.

Cheers!

Disclaimer: These are very rough back of the envelope calculations. We will have a better idea of our resource in December with the JORC news. I am only using GRR as a comparison, not to cross-promote the stock. My price evaluation is using averages, and not the high nor low deposit estimate. 99% of the time, I am wrong and this is not professional advice. Finally, this is comparing GRR and CAP on a level playing field while in reality location makes a big difference. Read of this what you will. All in my opinion, DYOR.