It's Official! Cyclone Metals (CLE) – A Small Cap with a Major...

It's Official! Cyclone Metals (CLE) – A Small Cap with a Major Partner

Cyclone Metals (ASX:CLE) just inked a game-changing deal with Vale for the development of its Iron Bear Project in Canada! This is a massive development, which you'll probably be aware that I've been anticipating for some time now. It fundamentally alters the landscape and outlook for this project and sets CLE up now to really unlock some serious returns:

Vale funds up to USD $138M in two phases to earn 75% of Iron Bear – de-risking the project while retaining upside for CLE.
Phase 1: $18M for Feasibility & Drilling – immediate funding to advance the asset.
Phase 2: $120M for BFS & Impact Studies – Vale commits serious capital if results are positive.
Buyout Potential – Vale can acquire the final 25% at fair market value or carry CLE through to production.
Strategic Positioning – Low-carbon iron ore demand is surging, and Vale dominates this space.
Tiny Market Cap – Just AUD $60M! With 840M shares on issue, CLE is an ultra-leveraged play worthy of more than just a trade.

With a potential world-class iron ore project now backed by a Tier 1 miner, what happens to CLE’s valuation if this project moves forward?

Quick rehash and update of what it means now that Vale is on board. Past studies have already been completed for this project and they have consistently come in at an NPV of around $7bn+ based on processing 2bn tonnes of a 7.2bn tonne resource, over 30 years and at 29% grading. However with enormous CAPEX, the asset was destined to become worthless...

Todays announcement completely and finally removes that barrier once and for all! In the years since the most recent economic assessment and despite the grim outlook on funding, whether through strategic genius or perhaps blind faith, the company progressed ahead with extensive drilling programs (more than doubling the MRE to 16.6bn tonnes without any drop in grading), they carried out comprehensive met work testing and also had the bulk of the resource progressed from the inferred to indicated category. They believed that if they continue to improve the economics of the project and prove up the confidence of it - it would only be a matter of time before a major would come to the rescue. Thankfully so, because all their work and testing has steadily uncovered a massive scale deposit of ultra-high grade, low impurity, magnetite iron ore... not only comparable with other world class deposits, it is in fact THE highest grade among all ultra-high grade deposits, combined with THE lowest impurity levels of any deposit in existence today. All this and other immensely favourable inputs around the geology for example strip ratio (0.4:1), grindability index, low opex requirement etc... are all about to now get put into a fully-funded PFS, DFS and will all support what I believe will be a much higher NPV for Iron Bear.

The avenues for CLE now to realise shareholder value range from being bought out at DTM stage whereby their 25% could be worth approx. $250m (a 5x on todays MC), all the way through to staying on as a junior partner in a producing asset which at this stage has very plausible pathways to as little as 20mtpa production, all the way up to a 100mtpa production via 10 year staged expansion, all with varying degrees of CAPEX (that will now be stumped up by VALE). With Vale on board the chance of this project realising one of these scenarios for CLE shareholders has just greatly increased. My calcs around the 20mtpa scenario show a valuation of $750m MC could be reasonable, whereas the ultimate blue sky of 100mtpa and CLE still being involved at such an advanced stage, their share of the project could support a MC of anywhere north of $2bn. Most importantly, the aspect you have to grasp is that this is no longer all that much about risk elements and binary outcome events falling in our favour. A lot of that stuff is covered. This is now a fundamental valuation story that simply needs to filter through the market and gain awareness. The de-risking is largely done. The company just needs to get out and inform the market now.
This begins tomorrow at the explorers conference in Fremantle.