ocean moves on

I would remind you all that Ocean valued UMC at $1.32 in September - as it turns out right on the nose. I wont be around to field any more nonsense from some of you as I am off walk about - meanwhile Ocean too have moved on ...

Iron Ore Holdings Stands Out From The Pilbara Crowd As A Dead-Ringer For United Minerals Corporation

By Our Man in Oz
http://www.minesite.com/nc/minews/singlenews/article/iron-ore-holdings-stands-out-from-the-pilbara-crowd-as-a-dead-ringer-for-united-minerals-corporation/1.html

Investors who liked - and perhaps even made a profit from - Minesite’s May 7 story about United Minerals Corporation (UMC) being a plum takeover target should love Iron Ore Holdings (IOH), a UMC lookalike from the same patch of Western Australia’s iron-rich Pilbara region. Both companies have pursued an almost identical strategy of pegging well-located exploration tenements close to existing services such as road and rail and, even more importantly, close to where the big boys of iron ore are working.
In UMC’s case the game was up, at least as far as Minesite’s Man in Oz was concerned, the minute he walked into the boardroom of the company and saw a map pinpointing the location of the Railway iron ore deposit. It so obviously belonged to BHP Billiton that one of the first questions Minesite’s man put to UMC chief executive Matthew Hogan actually came in the form of a statement: “Someday soon the man from BHP is going to walk in your front door, wave a large cheque under your nose and you won’t be able to say no”. Laughter followed, but two weeks ago that’s just what the man from BHP did, wafting a A$204 million cheque under the nose of Hogan and his fellow board members who quickly said “yes”. From a share-price low of A30 cents late last year the UMC crew, subject to final approvals, will walk away with A$1.30 a share. In Australian wheat farming jargon that’s called a “four bagger”, a return of four-times on the price.

No-one is yet saying that the management team at IOH will do the same, though it is worth noting that the company has risen from its share price low of A9.6 cents just before last Christmas to recent trades around A$1.02. The reason for that sharp upward run is easy to explain – IOH’s Iron Valley iron ore project is almost a dead-ringer for Railway, in that it offers direct-shipping grade ore of a similar tonnage running directly into a tenement owned by the company which bills itself as the “third force” in Australian iron ore, Fortescue Metals Group (FMG).

IOH chairman, Malcolm Randall, who also sits on the UMC board, is in no doubt that his exploration team has dealt the company a winning hand. He told Minesite that the resource at Iron Valley had already reached 160 million tonnes of direct shipping ore averaging 59% iron. “Included in that is a high-grade component of 107 million tonnes at 60.7%”, Malcolm said. “Our strategy is to fast-track Iron Valley into early production. It’s well located close to existing infrastructure, and bordered by BHP Billiton, Rio Tinto and FMG. By any measure Iron Valley is a major new discovery in this part of the Pilbara.”

But wait, there’s more to tell, and more reasons why at A$1.02 (which translates into a market capitalisation of A$119 million), IOH might have further to travel. The first is to compare deposits. UMC, the look-alike being acquired by BHP Billiton, has 158 million tonnes of ore in its Railway deposit, with a very rough calculation (A$204 divided by 158) producing a value of about A$1.29 per tonne – a record price for ore in the ground in the Pilbara. Now apply the A$1.29 per tonne to IOH’s 160 million tonnes and you get a number of A$206 million – or roughly double what IOH is currently capitalised at. Which, in turn, implies a share price which should be double what it is today.

Life, and stock markets, are never that fair and balanced and missing from the equation, so far, is a bid from a buyer, perhaps because IOH (unlike UMC) has a dominant shareholder, local billionaire media mogul and Caterpillar industrial equipment franchisee, Kerry Stokes. With his size 10 boots firmly planted on a 52 per cent chunk of IOH it is hard to see a deal being done quickly, or easily, or with anyone else other than Rio Tinto, the iron ore miner closest to Stokes’ heart. And that’s before we even mention the fact that IOH already has a small sales agreement with Rio Tinto and that Stokes and Rio Tinto’s Australian boss, Sam Walsh, sit together on the board of Perth’s dominant newspaper publisher, WA Newspapers Holdings.

The “join-the-dots” personal linkage between two big fish in the small Perth pond, plus Malcolm Randall sitting on the UMC and IOH boards, may (or may not¬) have played a part in IOH achieving the near-impossible with a mining major when it signed a deal with Rio Tinto for the very small Phil’s Creek project. Despite containing an indicated resource of just 15.1 million tonnes of modest-grade iron ore, Phil’s Creek material is destined to be carried on the Rio Tinto railway under a mine-gate sales agreement of the sort favoured by the State and Australian Governments as a way of getting smaller miners into production by sharing rail and port infrastructure.

For London followers of events in the Pilbara there is no need to dig into all the background personalities, just be assured that IOH has impeccable connections and has more to it than a one-trick pony like UMC. After tiny Phil’s Creek and the company-maker in Iron Valley comes a long list of other projects, including the potentially large Koodaideri South iron ore deposit. Somewhat oddly, the best piece of research into IOH has London roots, being published a week ago by Ocean Equities after a site visit from a team that included analyst Sam Spring. It might be imposing on Ocean (and Sam) but give him a call and ask for a copy (+44 (0) 20 7786 4378, or email sam.spring[at]oceanequities.co.uk and ask for a copy. He took 24-pages to say pretty much what you just read, but serious investors will find it enlightening.