new target $0.70 Bullish senario:1.14 Bearlish senario:0.28
Investment Thesis • We believe that the market is yet to apply full value to GBG’s share of the Karara Iron Ore Project. • Our positive view is predicated in the company meeting reaching its 16Mtpa run rate during FY15. • Iron ore remains one of our key commodity picks despite the recent volatility, with prices supported by China’s marginal cost of production. Key Value Drivers • The company’s goal is to reach Stage 2 production of 16Mtpa by 2015. Reaching this goal through on-time and on-budget development is key. • GBG is highly leveraged to iron ore prices, which in turn are strongly correlated with Chinese construction demand. Potential Catalysts • Stage 1 Magnetite sales due to commence in September 2012. • Additional drilling results, resource updates and studies from its other, 100% owned assets. Risks to our Price target • Development risk: The project remains on schedule, but slippage is an ever present risk at this stage. • Currency risk: In relation to the project budget this is largely past, but the debt facility required to cover the overrun is still pending. • Commodity price risk: Once the project is operational it will be more highly levered to the iron ore price than most peers due to the relatively high production costs and the premium it receives to bench mark pricing.
GBG Price at posting:
42.5¢ Sentiment: None Disclosure: Held
