southern cross report expect more upside too!

Hey Guys

Another well researched report from Southern Cross Equities on Sundance Resources. $0.81 Price Target for Sundance, is a conservative estimate, even after the share dilution due to the JV partner taking some shares.

Their share price forecast is based on a long term iron ore price of $100 per tonne.

We have mention the fact that world economic fundamentals for iron ore are extremely positive with CHina and India's insatiable demand for it to get their respective societies out of poverty!

If you have a look at the chart below from Southern Cross, it shows the relationship between the cost to mine iron ore as production volumes rise towards to the 1Billion Tonnes per year level. The red line that I have added at 627mtpa is the current annual demand from China (ALONE) as at 2010. By 2015, China's demand (ALONE) is forecast to hit 1.08Billion Tonnes Per Year of Iron Ore, which is represented by the second red line.

Now look at the corresponding cost to mine (Y Axis for both)iron ore for both the 627mtpa line and the 1.08Billion tonnes per annum line. The current iron ore cost price for the current CHINESE ONLY demand for iron ore is at around $55 per tonne! Remember these numbers do not include India's surge in iron ore demand which is just about to kick in!

When CHina's iron ore demand in 2015 reaches the 1.08-1.14Billion tonnes per year, the cost to mine 1.08Billion tonnes of iron ore skyrockets to $195 per tonne!




(Please don't take the Uppercase in a bad way, I'm shouting in a good way!!!) :)

THE $195 PER TONNE COST BECOMES A PRICE FLOOR FOR IRON ORE IN 2015 JUST AS SUNDANCE GOES INTO PRODUCTION!!!!

RIO Tinto, as mentioned previously on HC, has also stated that China's cost of mining iron ore has skyrocketed to $150 per tonne since July 2010! And it's not going down!
We also need to forecast India's demand for iron ore by 2015, as well as South Korea, Brazil, Indonesia and Russia!
Now look at the second chart from Southern Cross' report.

It shows the relationship between iron ore prices and SUndance's Share Price. Their 81c share price target is calculated at the $100 per tonne spot price of iron ore and 35mtpa production!

Since the demand from China will hit 1Billion tonnes per annum by 2015, just as the Mbalam and Nebeba mines go live, the world wide cash cost to mine iron ore will be sitting around $195+ per tonne! While Sundance's cash cost will be between $22-28 per tonne! The 81c share price is a very conservative price for Sundance, even in the short term.
(FYI Spot Price for Iron ore is right at this minute sitting at $193 per tonne!)

If we take today's spot price and apply it to the second chart, we get a price for SDL at approx $1.75!!! And this is at only 35mtpa production!!!




This is the most exciting part of Sundance's future is that they have had four drill rigs drilling night and day for the last 8 months, without an announcement showing an increase in resource of DSO iron ore from the 415mt since Q2 2010! As per Southern Cross' report, this is the last thing they are waiting for to complete the DFS by end of March 2011.

We all know they are drilling to increased the amount of iron ore in the Measured and Indicated category and reducing it from the Inferred, but you can expect, if not in the next 3 months, but in the next 12-24 months a total increase in JORC DSO Hematite Resource from the current 415mt. Their tenements in Cameroon and Congo has a lot more iron ore, which hasn't been explored yet, or only at a basic level. One thing smart mining executives do is leave some "meat in the fridge" so that they show growth in total resource, which then means growth in annual production revenues and profits!!!

Im sure Mr Jones and his team are doing just that! Whether it is in 2011 or 2012-2013 their annual production of DSO hematite will rise to 50mtpa, as a conservative figure!
So we are going from:

35,000,000 tonnes at $100 per tonne selling price and cash cost of $22 per tonne

Revenue
= 35,000,000 x $100 = $3.5Billion

less Cost
= 35,000,000 x $22 = $770m

Profit
$2.7Billion

And IMO moving to:

= 50,000,000 tonnes at $175 per tonne selling price (Spot Price less Discount to Offtake partners) and cash cost of $28 per tonne

Revenue
= 50,000,000 x $175 = $8.75Billion

less Cost
= 50,000,000 x $28 = $1.4Billion

Profit
$7.35Billion

That is a significant increase from current expectations on profit for this company, when the market catches on, wait for more upward share price revaluations during the next 12 to 24 months!

Good Luck to All Sundance Owners!

Now for one last item, check out this cliff face!

It's all Iron Ore! Magnificent!

We are part of something special and extremely BIG!!!

Cheers Nectar