sp outlook

Have been giving some thought to the UMC share price outlook. For what it is worth these are my present conclusions:
As the bear market rages it may be appropriate to review again where UMC may be going short and medium term. I have had an interesting session with a top iron ore analyst who has helped put the sector into perspective:

Iron ore values
===========
As the bear market gathers pace the iron ore sector has seen a downward adjustment which can be summarised as follows:
6 months ago iron ore was being valued by the market at around A$12/tonne. Those values have dropped and now looking like:
1. A$8.00/tonne for producers
2. A$6.00/tonne for developers with a route to the markets
3. A$4.00/tonne for those with tonnage but no access to the markets yet

So the market has seen sharp downward valuation overall - with UMC falling into category 3.
Given that with its 110MT of high grade DSO UMC should probably be trading at around $2.75 (110 x 4 / 158 = $2.78)

+++

Six month outlook
==============
... and where to over the next 6 months? The bear market will continue to threaten good shares as the bad continue to collapse .... financials, property, retailing and probably some commodities .... but UMC should continue to perform relatively well as the likely scenario may be:
1. The Railway resource increases to 150MT - that would push the share price up towards $3.80 at today's valuations
2. There are three new targets starting to be to be drilled which must be highly prospective - Jumbo. Railway East and Yandi. Mother Nature is a strange creature and may serve up some disappointments (one cannot guarantee 100% success) but my money is on that at least two if not three of these will deliver the goods with perhaps a minimum of 100MT, mid target for 2008 say 150MT and an outside upside 200MT - all with significant further upside as some of the targets are very large and will take more than 6 months out drill out.
3. Given the above what are the price targets for the shares? On today's market valuations - Minimum 250MT = $6.30, Mid range $7.60 - and outside upside $8.86.
4. The above assumes that UMC has not been able to arrange a shipping deal with Rio or BHP this year (it took IOH 3 years to negotiate their deal)
5. If a shipping deal is done than these share price projections could be lifted by 50%
6. If Mother Nature delivers everything possible UMC may eventually be sitting on between 500MT and 1 billion tonnes of high grade ore. You can do your own numbers for that!

Is UMC a good iron ore investment?
===========================
Meanwhile what makes a good iron ore investment these days - and how does UMC sit?

1. Location of resource
Ideal between Rio and BHP's railways

2. Size of resource
Initial Jorc resource differentiates UMC from its peers in terms of tonnage and grade. Railway's initial resource gives UMC the largest high grade DSO deposit held outside of the majors in the Pilbara, a region which currently produce 35% of the World's seaborne iron ore. This size provides the flexibility to develop the project on a scale which would warrant production of at least 5mtpa to 10mtpa.

3. Grade of resource
Outstanding DSO ore so far at Railway

4. Market capitalisation
Small at $340m

5. Deliverability to markets
The great unknown and challenge for the company

UMC passes muster on 1-4 and now needs to sort out 5. If they achieve that then the company will have a wonderful future - and so will the shareholders.

+++

Iron ore outlook
===========
There is a 5-year window to sell iron ore before global new capacity starts to take the heat out of the market which will probably see iron ore prices reduce slightly.

Summary
=======
So the issue is going to revolve around UMC getting a deal with someone (BHP/Rio???) to take their ore to Port Hedland and the waiting world markets. It will not be easy - the big companies are tough customers with plenty on their own plates - but are under some political pressure to open access to their railways for other companies.
Meanwhile the bear market will be doing its best to frighten the life out of everyone - including UMC shareholders
Batten down - the brave should make a fortune!