Energio Ltd (EIO.ASX, $0.21/sh, Mkt Cap $50m) – Maiden resource of almost 500Mt exceeds expectations. NOT COVERED
•EIO have released a maiden JORC resource for their 100% owned Agbaja Iron Ore Project in Central Nigeria, West Africa. •The resource of 488Mt @ 42.7% Fe estimated by independent consultants Coffey Mining is higher than what we were previously expecting (~400Mt), is based upon ~14,000m drilling and represents ~15% of the prospective mineralised area at Agbaja, which totals ~90km2 across a well defined plateau. The Company has previously released an exploration target for the Agbaja plateau of up to 2.7Bt and we estimate similar total tonnage. ?The mineralization across the plateau appears as a flat lying channel iron deposit (CID) with typically ~14m of mineralisation (average width) covered by ~5-10m of overburden. Weathering has enriched grades to average ~43% Fe (range from 35-53% Fe). ?Beneficiation will be required to remove deleterious material (in particular phos at ~0.7%) and increase Fe grade to >58% Fe. To that end metallurgical test work is currently being undertaken with preliminary results expected to be released in early November 2012. ?Following the release of the maiden JORC resource, management will now seek to conduct infrastructure studies prior to the commencement of a PFS in mid 2012. A further resource update is expected with a higher confidence level (i.e. Indicated) by June 2013. In our view, this project’s production profile will most likely be dictated by the capacity of the existing infrastructure in place, rather than resource tonnage (which we expect to be multi-billion tonne). ?We highlight that this is the first ever JORC iron ore resource reported in Nigeria and has been achieved in less than 12 months from the commencement of drilling in October 2011. EIO has a first mover advantage in Nigeria and we expect the country to begin to attract investment and interest from other mining/exploration companies following the success that EIO has had to date. We highlight other countries such as Sierra Leone (e.g. African Minerals, London Mining, Cape Lambert Resources) and Republic of Congo (Exxaro, Equatorial Resources, Xstrata, Sundance), previously feared as investment destinations but now seen to be significant iron ore provinces that have experienced significant investment in recent years. ?EIO has a significant infrastructure advantage with rail and port already in place. We make reference below to two companies where the value of infrastructure has been clearly demonstrated: - Equatorial Resources (EQX.ASX), which has an EV of almost $150m and is currently exploring for iron ore in the RoC. The company is yet to release a maiden resource but is in close proximity to a nearby rail line which is understood to have capacity of ~10Mtpa.
- The takeover earlier this year of African Iron (AKI.ASX) by Exxaro provides a transaction precedent which highlights the value and corporate appeal of projects that have a potential infrastructure solution. Exxaro paid ~US$350m for AKI, which had a 92% interest in the Mayoko Iron Ore Project in the Congo and a resource of 121Mt at 46% Fe. The US$350m acquisition valuation represented an EV/t of more than US$6/t. The same team behind EIO (Joe Ariti and Ian Burston) also orchestrated the AKI success.
•We do not currently have formal research coverage on EIO however following the maiden resource and our recent site visit to Agbaja, we will seek to initiate in the near term and will be marketing with management through Asia and Australia later this year. Notwithstanding the ~50% price appreciation in recent weeks (following positive site visit broker commentary), we believe the stock still represents attractive value given the potential for a large scale operation utilising existing infrastructure and led by a Board with more than 100 years iron ore experience.
EIO Price at posting:
21.0¢ Sentiment: None Disclosure: Held
