Carmichael released a very interesting report on BCI at the start of August. They had some very good figures.
They have estimated BCI will have approximately 35-40mt of Direct Shipping Ore available to them come their resource announcement in March 08. The section of the Carmichael report that I found most interesting was the "Peer Comparison and Valuation" section from the Carmichael report on Page 5.
They state :
The graph below indicated the EV per resource tonne of iron ore for a number of iron ore producers and explorers listed on the ASX, whose assets are mostly haematite/CID based (using JORC resources and publicly stated exploration targets). Three companies were removed from this peer group (MGX, TTY and MMX) as their EV/resource tonne is significantly higher and skews the average by nearly $2 per tonne.
We have assumed an resource target of 35Mt for peer comparison purposes. On the comparison, BCI falls below the average. Assuming an access agreement to a rail network can be negotiated, we estimate that BCI would have an EV/resource tonne approaching the average for the group, resulting in an EV of $140.4m for our assumed 35Mt target.
It is quite easy to see that BCI is under the sector average for EV/resource tonne. Currenty at $1.58 BCI have a 92.1 million fully diluted market cap. Carmichael have worked out their EV/resource tonne off 35 million tones of DSO.
92.1 million divided by 35 million gives you an EV/resource tonne of $2.63. This is well under the sector average of $4.02. They believe BCI will be approaching the average once an access agreement to rail and network is negotiated as additional costs will be paid to FMG to use their infrastructure. This is how Carmichael get their price target of 2.39. 35 mt multiplied by the sector average gives out 140 million dollars. $140.7 million divided by 58.75 million shares = $2.39 share price target.
NOW…on the recent investor presentation for the European Roadshow they had a total exploration target of
Total Exploration Target 35 – 75 Mt @ 55 – 58 % Fe
After seeing this I have come to the conclusion that Carmichael have done very conservative figures and set a conservative price target of $2.39 per share.
Here are my Findings.
Additional 10 million shares listed at 1.20 to help with funding purposes. This is just made up figures but I would feel more than confident they could raise money at 1.20. The next placement to raise funds will be higher than this IMO but I am also remaining conservative. If this occurred we would have.
68.3 million shares fully diluted.
Cash at Bank – Minimum of 12 million at bank.
Say we keep the current share price at 1.58 to work out the fully diluted market cap we would get a market cap of around 108 million dollars. They have said total exploration target is at 35 – 75 Mt @ 55 – 58 % Fe. Say we used a 50MT figure to remain conservative.
EV/resource tonne would equal $2.16! Industry average is 4.02 meaning BCI would be extremely cheap. Lets assume additional costs to be paid to FMG to use rail/port facilities. We would have an EV/resource tonne closer to the average.
Assuming we have a 50 million tonne resource BCI would have an Enterprise Value based off the average $4.02 figure of $201 million which is inline with other companies.
A price target would then be around 2.95 per share and this is after future capital raisings have been accounted for. So all we need for them to do is to keep on drilling.
I believe I have still been conservative. There is further potential upside if further discoveries are made. This is why I have chosen BCI as my preferred ironore stock. They have a huge advantage of not having to worry about infrastructure and port facilities which could really bring in the cash flow quite early. They will be in production before a lot of the other iron ore explorers.
If you wish to have a read of the Carmichael report the link is below.
(20min delay)