Wipper, with pleasure and sorry all about the dodgy link...
Irons in the fire The Business Spectator (Abstracted from AFR Smart Investor) 22.9.08
Australian investors are advised to look at three junior iron ore miners. The three are Brockman Resources, Giralia Resources and Golden West Resources. In October 2008, the global price for iron ore is still high and it may be wise to buy into these groups while the stock is still quite cheap. However, it will pay each investor to do his or her homework on these groups
As I said, short and sweet... have not seen the AFR article as not a member.. if any one is and cares to post that would be appreciated.
Here's the Minesite article for those who have not seen it in full... nice read
Cheers DL
Investors Who Haven’t Done The Numbers On Giralia Resources’ Iron Ore Properties Might Be Missing A Trick
Charles Wyatt
No doubt about it, Giralia Resources is one of the most fascinating companies operating in Australia. Not only does it have five wholly owned iron ore projects, three of which are high grade hematite and close to infrastructure, but it is also involved in the Lake Frome joint venture which adjoins the Beverley uranium mine in South Australia, and has a gold and a nickel sulphide project to boot. Iron ore is top of the pops at the moment and it has been suggested that the price of iron ore may go even higher if BHP Billiton succeeds in taking over Rio Tinto. It’s also been suggested that uranium is due for another run after fading from the limelight over the past year. In addition to all this Giralia has A$76 million in the kitty as well as a portfolio of shareholdings in six listed companies which it has spun off, worth A$9 million even in today’s bear market.
And, if you stand the cash and the quoted investments alongside Giralia’s A$202.5 million market capitalisation, a short reckoning up reveals that the market is is valuing all the iron ore projects, plus Lake Frome and the two other projects at just A$117.5 million. Something is clearly out of kilter. It may be that Giralia dazzles investors with its plethora of projects. One way of avoiding that dazzle is to focus in on the projects that are likely to make a material difference to the company at the earliest possible moment. That would be the two most advanced hematite projects, slated to be the first to contribute cash flow.
Last month the company announced an initial resource estimate of 29.4 million tonnes grading 57.7% iron for its Western Creek project in the Pilbara. This project has a lot of the right attributes, as we are talking about ore that can be shipped direct without treatment. Western Creek is about 15 kilometres from the town of Newman in the Pilbara, where there are train loading facilities and a rail line. These are crucial to the success of what is very much a bulk transport operation, encompassing all the usual logistical issues. The idea behind the earliest possible release of this most recent resource estimate was to open doors and get talks on possible mine gate sales underway as soon as possible. No secret who the other party will be in these talks, as Western Creek adjoins BHP Billiton’s Mt Newman iron-ore mining leases in the Western Ridge area, and covers an area of the Marra Mamba Formation outcrop, along the key Whaleback Fault.
This outcrop is thought to be a direct extension of BHP Billiton’s Silver Knight iron ore deposit which lies immediately to the north and east, and was drilled by a joint venture between BHP and Renison about 20 years ago. The results were only released to open file towards the end of last year and show some great grades and intersections in the Marra Mamba mineralization, right on the edge of Giralia’s ground. Again mineralization started at shallow depths, and intersections of 129 metres at 59.6% iron and 108 metres at 61.5% iron gave Giralia’s chief executive Mike Joyce some sweet dreams for the future, as he admits. His hope now is that the resource can be pushed up to 50 million tonnes, and even 100 million, with more drilling now taking place along strike of the northern and southern Marra Mamba zones in areas not included in this estimate. Also, the drilling done to date in the northern zone was not sufficient to qualify in the initial estimate, so more infill drilling is required.
The next most advanced project is Beebyn, another hematite deposit, this time in the mid west of Western Australia. It adjoins the Weld Range direct shipping ore project, a joint venture between Midwest Corporation and the big Chinese steel company Sinosteel, which is currently trying to takeover its partner. Just to give an idea of the size of these projects in Australia, the Weld Range tenements consist of a range of hills that rise up to 250 metres above the surrounding plains. The range is up to three kilometres wide and extends for up to 60 kilometres, from south-west to north-east. The Midwest-Sinosteel joint venture has a resource of 133.4 million tonnes at 58.5% iron at a cut-off grade of 50% iron. Grades as high as 66.9% have been recorded. It is also encouraging to note that the joint venture partners have gone on record as saying that no contaminant elements have been detected on the areas covered by this resource estimate, and that the strip ratio will be low.
Giralia has a rather more modest initial resource estimate of 7.2 million tonnes, grading at a healthy enough 57.2%. But this is only the beginning, and there is plenty more to come as seven more zones of hematite have been discovered at the nearby Beebynganna project. Iron ore exhibits a major difference from most other ores in that the grade tends to be consistent and this project is near surface with plenty of outcrops. It is therefore possible to project a target tonnage at quite an early stage, though this obviously has to be confirmed by a JORC resource estimate. In the case of Western Creek, Mike Joyce suggests that the 29.4 million tonnes already in the bag can reasonably be valued at A$8.43 per tonne, based on the mine sale agreement for similar grade ore that was signed between Iron Ore Holdings and Rio Tinto. This would put a value of A$247 million on Western Creek alone, which alone is double the current market capitalisation of Giralia.
In the case of Beebyn a valid comparison could be made with the A$9.40 per tonne paid by Sinosteel for JORC tonnage just next door. This would put a value of A$67.68 million on Beebyn’s current resource. The total value of Western Creek and Beebyn is thus A$314.68 million, but this is way off beam as it is the target tonnage at each project in which investors should be interested, albeit at a slightly lower figure. Just as an example, Sinosteel can be seen to have paid A$6.22 per tonne for 225 million target tonnes at Weld Range. Mike Joyce is thinking in terms of 40 to 70 million tonnes at Beebyn, including Beebynganna Hills, so this would take it up to a value of between A$248 and A$435 million. And just to round off this argument, the target tonnage at Western Creek is at least 50 million tonnes and will probably be a lot more.
So Giralia can be seen to be valued well below what can be attributed to just two of its iron ore projects. In our last note on the company Our Man In Oz pointed to the potential at Earaheedy, which has a fascinating history and is 200 kilometres from the BHP Billiton iron ore centre at Newman. The story of Lake Frome is for another day, and at the moment the uranium focus is on the Beverley Four Mile discovery made by Quasor and Alliance Resources. Giralia has joint ventured ground adjacent to Beverley, and with the price of uranium starting to look firmer after both Cameco and Uranium One announced reduced production, Giralia’s 25 per cent free carried interest could have a hefty value in the years ahead. And it is to the years ahead that investors should be looking if they are not to miss the bus.
