southern cross equities recommendation

In today's Australian.

Brockman Resources (BRM) ; Southern Cross Equities; Speculative recommendation with high risk/high reward; No share price target; Last traded at $2.39

SOUTHERN Cross analysts note that Brockman Resources, which is developing the Marillana iron ore deposit in the Pilbara, appears undervalued compared to its peers, with access to infrastructure one of its main hurdles. The broking house observed that the Marillana deposit was of insufficient scale to justify dedicated infrastructure and it was necessary for it to piggyback on existing networks in the region, which had so far remained closed to anyone outside of the BHP/Rio stranglehold. The BHP rail line runs through the lease, and Fortescue Metals Group's rail line is only 35km away. However, both are running flat out and are unlikely to accommodate a new player. A mine gate sale agreement could be an alternative. "With one of the largest hematitic resources, albeit low-grade, of an ASX-listed iron ore junior, BRM appears undervalued compared to some of its peers. BRM is trading at $0.43 per tonne of shippable ore (550 million tonnes) compared to the sector average of $6.29 per tonne. Clearly the uncertainty over infrastructure and the ability to successfully beneficiate what amounts to 95 per cent of the resource is justification for a discount," Southern Cross told clients. Further resource upgrades, successful test work and progress with an infrastructure agreement should de-risk the concept and potentially support a re-rating. Southern Cross labelled BRM as a speculative high-risk/high-reward situation.