pattersons aki update

Patience will reward those who sit in this space.

Study confirms 10Mtpa rail capacity
Company update
 African Iron Ltd (AKI) recently announced preliminary results of
a key study examining the line capacity of the Republic of Congo
rail network. The study undertaken by Egis International
confirmed the network has a capacity of 10Mtpa with the
potential for further expansion. These findings are significant
given it provides a direct transport route to market from the
Mayoko Project (production Q2 2013) to the deep water port at
Pointe Noire. AKI will need to provide further clarity on costs
with signalling and telecommunications key areas to watch. We
expect a the MoU to transition to a binding agreement as
development progresses. BUY retained.
 Drilling Program to provide ongoing news flow: In March 2011 AKI
commenced a 30,000m resource drilling program at Mayoko, which is
aimed at upgrading the supergene hematite DSO resource (currently
33Mt) and defining an initial resource for the underlying enriched
hematite BIF. Positive results from the program will augment a
feasibility study for the project due in Q4 2011. Following which AKI
should move to production in Q2 2013. Given the scope of the drilling
program we expect a steady news flow of drilling results and resource
upgrades through out 2011.
 Metallurgical Test Work: The first of a three stage bulk metallurgical
testing program is currently being carried out Bateman Engineering.
Forthcoming results will serve as a guide for processing plant
development and optimisation.
 Low capital intensity: With substantial existing infrastructure and
close proximity to critical rail networks, AKI has lower capital intensity
than peer iron ore developers. Our estimates suggest AKI can bring the
project into production for ~US$250m. With AKI targeting 5mtpa
(US$50/t of annual capacity) in the near term excess rail capacity may
provide developmental synergies for AKI and other rail users
 Strong Team in Place: AFI has a management team in place with
sound knowledge and operational experience in West Africa. We
anticipate a further announcement on the appointment of an MD in the
short term.
14 April 2011
12mth Rating BUY
Price A$ 0.28
Target Price A$ 0.72
12m Total Return % 162.1
RIC: AKI.AX BBG: AKI AU
Shares o/s m 479.5
Free Float % 75.00
Market Cap. A$m 131.9
Net Debt (Cash) A$m -6.3
Net Debt/Equity % na
3m Av. D. T?over A$m 0.74
52wk High/Low A$ 0.42/0.13
2yr adj. beta 0
Valuation:
Methodology DCF
Value per share A$ 0.96
Analyst:
Alex Passmore,
Tim McCormack
Phone: (+61 8) 9263 1239
Email: [email protected]
Disclosure:
Patersons acted as Joint Lead Manager to
AKI?s recent $96m equity raising at
$0.30/share. It received a fee for this
service.

14 April 2011 African Iron Ore
RESEARCH NOTE ? PATERSONS SECURITIES LIMITED 2
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility
or liability on any account whatsoever on the part of this firm or any member or employee thereof.
African Iron Limited 0.28 Year End June 30
Valuation A$m A$/sh Commodity Assumptions 2011F 2012F 2013F 2014F 2015F
Mayoko Hematite 459 0.64 A$:US$ 0.97 1.00 0.92 0.83 0.80
Mayoko Magnetite 0 0.00 Iron Ore Fines (US$/t FOB) 119.53 119.53 119.53 114.64 95.00
Mayoko Pellet Plant 0 0.00 Iron Ore Lump (US$/t FOB) 143.82 143.82 145.22 127.75 63.58
Exploration 100 0.14 Magnetite Pellets (US$/t) 158.94 177.80 180.97 182.72 151.41
Corporate (12) (0.02) Magnetite Conc [bmk] (US$/t) 127.00 127.00 127.00 121.81 100.94
Unpaid Capital 135 0.19
Cash 6 0.01 Production Summary 2011F 2012F 2013F 2014F 2015F
Debt 0 0.00 AFI Share of Production (kt)
NPV 689 0.96 Mayoko Hematite 0 0 400 3000 4000
Price Target (25% discount to NPV) 516 0.72 Mayoko Magnetite 0 0 0 0 0
Iron Price Mayoko Pellet Plant 0 0 0 0 0
Valuation Summary of Operating Assets Cost Summary (A$/t)
Mayoko Hematite na na 41.33 42.69 42.99
Mayoko Magnetite na na na na na
Conc Price Received 143.86 140.40 152.67 162.41 138.79
Profit & Loss (A$m) 2011F 2012F 2013F 2014F 2015F
Sales Revenue 0.00 0.00 59.63 395.12 350.99
Other Income 0.8 4.2 5.1 5.4 7.4
Operating Costs 0.0 0.0 16.5 128.1 172.0
Exploration Exp. 0.0 0.8 0.7 0.2 0.2
Iron Ore Production Summary (AFI share) Corporate/Admin 0.2 8.2 8.3 8.5 8.7
EBITDA 0.6 (4.8) 39.2 263.8 177.5
Depn & Amort 0.0 0.0 2.4 17.8 23.7
EBIT 0.6 (4.8) 36.8 246.0 153.8
Interest 0.0 3.2 6.5 4.9 0.5
Operating Profit 0.6 (8.0) 30.3 241.2 153.3
Tax expense 0.2 0.0 11.4 72.3 46.0
Minorities 0.0 0.0 9.2 56.1 35.0
Abnormals 0.0 0.0 0.0 0.0 0.0
NPAT 0.4 (8.0) 9.8 112.7 72.3
Normalised NPAT 0.4 (8.0) 9.8 112.7 72.3
Cash Flow (A$m) 2011F 2012F 2013F 2014F 2015F
Adjusted Net Profit 0.4 (8.0) 9.8 112.7 72.3
+ Interest/Tax/Expl Exp 0.2 4.1 18.5 77.4 46.7
- Interest/Tax/Expl Inc 0.2 11.4 24.6 79.3 48.7
Reserves & Resources + Depn/Amort 0.0 0.0 2.4 17.8 23.7
Mayoko Magnetite Mt % Fe +/- Other 0.0 0.0 0.0 0.0 0.0
Reserves Operating Cashflow 0.4 (15.4) 6.1 128.6 94.1
Resources 40.0 - Capex (+asset sales) 0.0 137.1 73.8 4.3 4.3
Exploration target 900-1300 - Working Capital Increase 0.0 0.0 0.0 0.0 0.0
Mayoko Hematite Mt % Fe Free Cashflow 0.4 (152.5) (67.7) 124.3 89.7
Reserves - Dividends (ords & pref) 0.0 0.0 0.0 0.0 2.1
Resources 33 55.0 + Equity raised 88.5 130.0 15.0 4.9 0.0
+ Debt drawdown (repaid) 0.0 120.0 0.0 (80.0) (60.0)
Directors Net Change in Cash 41.9 97.5 (52.7) 49.2 27.6
Name Position Cash at End Period 48.2 145.8 93.1 142.3 169.9
Ian Burston Non-Executive Chairman Net Cash/(LT Debt) 48.2 25.8 (26.9) 102.3 189.9
Joe Ariti Non-Executive Director
Anthony Sage Non-Executive Director Balance Sheet (A$m) 2011F 2012F 2013F 2014F 2015F
Cash/Bullion 48.2 145.8 93.1 142.3 169.9
Total Assets 198.2 440.2 465.0 465.0 502.6
Total Debt 0.0 120.0 120.0 40.0 -20.0
Total Liabilities 92.5 212.5 212.5 212.5 132.5
Shareholders Funds 105.7 227.7 252.5 252.5 370.1
Substantial Shareholders Shares (m) (%) Ratios
Cape Lambert 120.0 25.0 Net Debt/Equity (%) na -11.3 10.7 -40.5 -51.3
JP Morgan 45.0 9.4 Interest Cover (x) na -1.5 5.7 50.7 285.3
Deutsche Bank AG 26.2 5.5 Return on Equity (%) 0.4 na 3.9 44.6 19.5
123.0854 120.127035 130.62995 138.96339 118.75