value of resource potential comparison

To Maximus holders,
One of the research fundamentals in identifying "comparative value" in Maximus or any other spec stock is to search for other companies who might provide some comparative market cap and resource comparisons to identify fair value for MXR.
In one of the reports I get there is an article on a small explorer called Indo Mines (IDO) which has a market cap of $88m. "Compare Shares" has it as their stock of the week.
Indo is targeting pig iron in sand in Indonesia. The article is interesting in that they have a market cap of $88m based on a share price of $1.16 and are targeting a resource of 65m t ....." a scoping study completed in April last year estimated that a 1 million tonne per annum (mtpa) operation could produce annual cash flows of $185m, yielding a net present value (NPV) for the project of $505m – Not bad for a company capitalised at $88m.".....
Pig iron gets a higher price than magnetite, but the figures reveal a lot about the resource net present value (NPV) Maximus is targeting in the mid west.
65m t for IDO as compared to 3 to 4 bn t for MXR.
Worth a read.
I am doing a few other comparisons and will post on MXR threads in due course.
MXR is way over sold at 18c and looks to be trading at a fraction of the forward price to earnings potential of other peers in the vanadium magnetite resource sector.
I don't own IDO shares and I think it doesn't come close to the value in MXR.

The article.....

Stock of the week – Indo Mines
July 07, 2008
Tim Morris, wise-owl.com analyst

Company: Indo Mines Ltd
Code: IDO
Recommendation: Update
Market Cap: $88m

The mere mention of ‘iron ore’ tickles the taste buds of most investors because of the sector’s strong returns over the last few years. The latest news that Rio Tinto has secured a 79% increase in Benchmark prices for ‘Pilbara Fines’ to $144.66/t has compounded enthusiasm towards the sector.

Demand for ferrous metals appears strong regardless of whether its source be traditional ore, recycled scrap, or in the case of Indo Mines – sand. This column previously looked at Indo Mines almost one year ago in late July. With the share price remaining relatively flat overall since this time, our ‘spec buy’ recommendation is hovering at breakeven, a strong performance considering the broader market’s 17% decline over the same period.



What differentiates Indo Mines from other aspiring iron producers is that its resource is embedded within the sand of a 22km long, 1.8km wide section of beach located in Java, Indonesia. Containing 65Mt of iron metal, the Yogyakarta iron sands project has the potential to support 30 years of mining. Indo Mines currently has a 30% interest in the project, increasing to 70% upon the completion of a Bankable Feasibility Study (BFS). The end product that Indo Mines aims to produce from Yogyakarta is known as ‘Pig Iron’, an intermediate product which can then be used as an input for steel mills to produce steel sheets, tubes, wire, and stainless steel.


Unlike many iron ore miners in the Pilbara, where the ore is often rich enough for direct shipping to the customer, Indo Mine’s iron sands operation will require a processing plant to extract the iron and produce a saleable product. Although the need for processing creates uncertainty and additional risk, it creates opportunity, with investors overlooking the stock to date.

Where’s the opportunity?

The processing technology to be adopted has been employed by ASX200 steel producer, Bluescope Steel in New Zealand since 1986, thereby reducing the processing risks. What’s more, a scoping study completed in April last year estimated that a 1million tonne per annum (mtpa) operation could produce annual cash flows of $185m, yielding a net present value (NPV) for the project of $505m – Not bad for a company capitalised at $88m. Attaining the funding to get the project up and running may prove a challenge though, as the capital costs were estimated to be $700m, a figure that could rise even further in the current environment of increasing cost pressures within the resources sector. However helping the company to attract capital should be the project’s enhanced economics in light of recent strength in pig iron prices. The scoping study assumed prices of $US300-350/t, however over the last year global pig iron prices have doubled.

When will production kick in?

After commissioning a pilot plant in May, the company has sent an initial 50t production sample grading 55% Fe to Germany for smelting tests. Results of the test will be used in the design of a full scale plant that produces a product to meet the metallurgical specifications of its future customer base – the Asian steel mills.

We expect a large part of buyer interest to come domestically, as Indonesia currently imports 100% of its ferrous needs. Leading the interest is that nation’s largest steel producer, which has signed up for 100,000tpa, or 10% of proposed production for the first 15 years.

The BFS was originally targeted for completion in mid 2008, but has now been pushed back until the first half of 2009. A clear production date has not been set, however previous timelines have indicated that it could be achieved within 2 years of BFS completion. During the current year, the company is working on overcoming social and environmental issues associated with project development. In addition management are aiming to expand the company’s resource base by increasing its landholdings in the area. Current discussions with potential vendors in the advanced stages could increase the resource base three to five times.

In the short term, an acquisition of this nature could trigger a share price re rating, while ongoing strength in pig iron prices and positive metallurgical test results regarding pilot production could provide additional catalysts. Further down the horizon into 2009 and beyond lie the major drivers of a share price re rating – BFS completion and eventual production. Risks to consider include the possibility of a downturn in pig iron prices, failure to secure development funding, and failure to appease the project’s social and environment issues – a study about which is due for completion later in the year. However for now we retain our ‘speculative buy’ recommendation on the stock and have suggested to our members – continue holding.