valuing marampa

Hi Guys,

I know a lot has been said about Marampa and we are all hoping for news on this soon. I think the rail tie up to 5mtpa is a good indication that something is afoot.

Southern Cross Equities have just re-confirmed a buy for SDL with a price target of 81c for a $2.14b MC.

Doing some rough and ready numbers:

Marampa 5mtpa (when rail infrastructure at full capacity)
SDL 35mtpa DSO

SDL $3.8b infrastructure spend
Marampa ?? but we know no rail spend needed. Using WPG as a proxy assume $100m for mine development but then we need to add possible spur line and rolling stock another $100m?

SDL opex $22t
Marampa opex: Scoping Study expected in early Feb-2011

SDL: Resource DSO Hematite 415mt @ 62% Fe overlying 2.3bt Itabirite @ 38%Fe

Marampa: 197Mt @ 28.5% Fe with resource update pending in June 2011 Quarter and expected increase. Will require benefication to achieve 64-66% Fe with 43% mass recovered and 84% Fe recovered. Thus (197mt x 43% = 84mt @ 64-66% Fe)

Thus very hard to compare the two operations but on the data available and some massive assumptions;

Tpa throughput puts Marampa (5mtpa) at 14% of SDL (35mtpa)

DSO from SDL and Marampa concentrate place similar initial project lives on projects (although SDL have additional 2.3bt @ 38% and Marampa likely to increase ore 4-5 fold).

Marampa capex assumed at 5.2% of SDL for 14% of tpa

Sovereign risk similar ??

Time to production: assume Marampa sooner than SDL's proposed 2014 given most of rail and port infrastructure in place.

Valuation:

Based on $2.14b target MC for SDL and based on tpa alone, Marampa would be valued at $300m (ie 14% of $2.14b).

However, add the benefit of low capex for Marampa relative to SDL ($3.8b vs. $200m on an interest cost (10%) per relative tpa (14%)) and Marampa adds a further $53m to its valuation.

Marampa time to production + sovereign risk may add a little more to the valuation.

However, if TS was able to achieve a $350m sale price with possibly a $1t royalty and retained stake 10-25% I would be very happy.

Cheers
John