rail access

article from Eureka report below suggesting FRS a play on shared rail access. UMC superior IMO based on larger tonnages.


Ferraus (FRS); mkt cap $125m

Ferraus (FRS) is another small cap company leveraged to the strong domestic iron-ore industry. In addition, it may well receive a huge boost if the W.A. Govt's decides to allow shared access of railway infrastructure in the Pilbara.

Ferraus

Ferraus currently has defined a 28.6mt hematite resource at its Robertson Range project in the Pilbara and we believe ongoing drilling success is expected increase this to 35-40mt with an upside case potential target of 100mt. In addition, drilling at the nearby Davidson Creek has intersected mineralisation with the potential to add an additional 10-30mt resource.

The company is now working to develop the project to a 2Mtpa operation with production starting in 2009. However ongoing drilling success has the potential to result in FRS operating two mines producing 5-10mt pa.

Considering the project is 450km from Port Hedland the economic success of the project was always dependent on an agreement with BHP to access its Jimblebar railway or sell ore at the mine gate. As a result, Ferraus has always been a high risk/high reward proposition. However, if the company's production ambitions are achieved and we think they can, significant value could be unlocked.

Pilbara rail access.

However, we believe the risk profile has the potential to be significantly lowered. It is early days, but the rumoured draft review yet to be handed to the Cabinet, recommends that the incumbents continue to operate the Pilbara railway system, but recommends that the junior iron-ore producers be charged a rail haulage fee.

That would be a huge positive for FRS and has the potential to unlock significant value. As we previously mentioned BHP expects the iron-ore market to remain in deficit until 2015 which means FRS has a huge opportunity to sell hematite ore to supplement BHP's Pilbara production.

FRS is currently working on a mine plan that will enable it to begin access or mine gate sale negotiations with BHP. With a market cap of just $125m FRS is basically a cheap option on iron ore prices and 3rd party access to Pilbara infrastructure. This is a solid little story and our price target on FRS is $1.50.