latest research on tty by euroz

Territory Resources Ltd (TTY $0.35) BUY
�� Price Target: $0.53/sh
�� Reason For Update: Company Presentation
�� What we think:
Jasmine, a near mine prospect has yielded good exploration results, eg 18m @ 63.6%
Fe, 36m @ 61.9% Fe. This should lead to meaningful ore reserve additions. Also Helene
4 is prospective for incremental resource addition in the near future. We estimate 1-2mt
could be forthcoming overall. Our valuation had already assumed some success from
these prospects.
Mt McCarthy expl?n drilling yielded disappointing results from the initial phase. Territory
will now negotiate access to other prospective areas on the tenement with Traditional
Owners before conducting further drilling. Our valuation had not assumed any success
although we were hopeful that some would occur.
Maintaining exploration drilling during wet season is a sign of management focused on
growing shareholder value. Wet season drilling is near the mine, while outlying regional
targets will be drilled during the dry season. TTY is spending ~$6.5m on exploration
during FY?11.
Benefi ciation plant is in ramp-up. It is showing good early signs on product quality,
although wet season is hampering throughput.
Potential for full recovery of Monarch debt to TTY ($13.6m outstanding) and the value
of TTY?s interest in Blackwood Corp (ASX:BDW) adds incrementally to our valuation. The
Blackwood holding is largely a carryover from TTY?s failed investment spree 2-3 years
ago under a previous management regime.
Mine production has as expected been hampered by rain. Our forecasts remain largely
unchanged at ~350kt for the Dec Q. The rain will continue to hamper the early part of
March Q?11.
Iron ore prices of US$110/t FOB and US$125/t FOB for 58% fi nes and 59% lump products
respectively.
Debt to noble remains unchanged at $21.8m, with TTY still looking to have it retired fully
by mid 2011.
The benefi ciation plant creates a future opportunity to add value if it can be shown
to work on low grade run-of-mine ore. This will be evaluated once the plant has been
ramped-up on the stockpiled on low grade fi nes. The benefi ciation plant is designed
to process 80kt/mth of ore feed grading 51% Fe to recover 44kt/mth grading 60% Fe in
fi nes only. This equates to a 65% recovery of iron units for 55% mass recovery. There is
some 12 months of stockpiled feed already for the bene plant.

Investment Case:
Territory Resources is cheap. Our valuation has been upgraded to $0.53/sh, on the
expectation of full recovery of the Monarch debt.
The stock remains undervalued because of the legacy of what was a weak balance
sheet, and its perception of short life. Ongoing incremental exploration success
continues to prolong life.
We believe that Territory Resources will achieve our valuation once it is shown to be
debt free and still with ongoing good cashfl ow. The wet season has temporarily muted
momentum which creates a buying opportunity with a +2 month view.
Meanwhile the exploration campaign and the benefi ciation plant creates opportunity
for blue sky in the future which is not valued by the market price.