News UMC has today released its quarterly results for the period ending 30 September 2008. Whilst the quarterly provides a comprehensive overview of the progress made by the Company it more importantly outlines new details on initial exploration results for both its iron ore and bauxite projects. A summary of key highlights is set out below:
Iron Ore Exploration Jumbo Junction – Initial assay results highlight a new iron ore discovery under cover at Jumbo Junction. The Company believes that this mineralisation, based on its Fe and SiO2 assay results with low Al2O3 and P levels, is suitable for upgrading by simple beneficiation to produce a premium “Brazilian style” itabrite fine product of ~63%+ Fe. Railway East and Yandi Headwaters – Drilling programmes have been complete (50 RC holes for 4,188m and 14 RAB holes for 537m at Railway East and Yandi Headwaters respectively), and initial assay results are expected shortly. Railway - Assay results continue to be progressively received and the Company expects to provide an updated Measured/Indicated JORC resource shortly (target of 15-20mt Measured Resource of high grade DSO bedded iron ore)
Ocean Comment: While only 23 out of 62 RC holes have been received from the Jumbo Junction drilling programme initial assay results are promising in that: a new discovery has been made; and the discovery has the potential to quickly add significant tonnage’s to UMC’s total resource - thereby adding value to the Company. The type of mineralisation at Jumbo appears to be very different to that discovered at Railway and, from initial discussions with the external consultants/review of similar type deposits, it is expected that it will provide a high grade/low impurity product requiring only simple beneficiation (grinding and flotation to liberate and remove silica from the feed ore with the remaining product being a high-grade hematite concentrate). The process is well proven and commercially competitive as evidenced by its significant use by Vale in Brazil (despite the relative freight cost disadvantage).
Whilst incremental tonnages are important to the medium-longer term development strategy (and the potential capex profile of the Company), we believe that the majority of UMC management time and resources continue to remain focused on accelerating the development of Railway, which is in its own right a company making discovery, and entering production ASAP. We expect further assay results from drill programmes at Railway, Railway East, the Yandi Headwaters and Jumbo Junction shortly.
Bauxite Exploration Gardner Plateau - The main focus of this years exploration programme in the Kimberley has been the Gardner Plateau target where 1,763m has been drilled with 3,534 samples collected. While only 653 assays of the samples have been received (~20%), there have been a significant number of interceptions >20% AvAl2O3 recorded near surface.
Ocean Comment: The Gardner Plateau lies directly south to the Mitchell Plateau bauxite deposit (owned by Rio/Alcoa JV) which contains a resource of ~450mt of low grade bauxite. Initial assay results support UMC and Norsk Hydro’s belief that the Gardner Plateau is indeed an extension of the Mitchell Plateau mineralisation and samples from this year’s exploration will be sent to Norsk’s labs for met testing. Further assay results are expected shortly.
Corporate Update Cash at period end: A$16.7m (last quarter A$17.1m), with a further the A$3.4m inflow from the conversion of remaining listed options. Estimated cash outflow of the next quarter is A$1.5m. Strategic development: UMC has reiterated it is currently negotiating and evaluating various alternative strategies and proposals with and from 3rd parties and that these may take time to complete, potentially requiring independent consultation. Infrastructure access: The Company has stated its belief that the declaration of BHPB and RIO’s railway lines will provide an opportunity to negotiate the transportation of its high grade Fe (DSO) product.
Ocean Comment: UMC’s cash reserves of ~A$16.7m are estimated to be more than sufficient to complete: a pre-feasibility study on Railway; project exploration and metallurgical programmes; environmental and hydro-geological studies; and potentially achieve a significant increase in its high grade DSO resource (dependant on resource upgrades at Railway from infill drilling and exploration success at new priority targets). By mid 2009 we believe these work programmes will be complete and negotiations for commercial offtake agreements will be well advanced. Since UMC originally listed in late 2004 it has raised a total of ~$30m, and has developed to its current position with expenditure of only ~A$13m, a remarkable achievement.
We believe the Company is in a very strong corporate position given its current cash position, high grade DSO resource at Railway, exploration potential and changing infrastructure environment in the Pilbara to negotiate with 3rd party infrastructure access and/or other means to create significant value for shareholders.
Key Events / Valuation Triggers Near term news flow is expected to be positive dominated by the development of UMC’s iron ore projects including: · Further assay results from new priority targets - Particularly Railway East, Northern Yandi headwaters, and Jumbo Junction; · AGM Nov 7th - providing a review of the recent developments for the Company and changing infrastructure landscape in the Pilbara; · Railway prospect - drilling programmes and assay results are ongoing to upgrade Railway’s resource status and potential tonnage, with particular focus on “Value in Use” criteria. · Bauxite prospect - drilling programmes are now complete and further assay results should be shortly available; · New and ongoing corporate strategy discussions and further development of the ongoing pre-feasibility studies.
UMC Price at posting:
67.0¢ Sentiment: Buy Disclosure: Held
