because this ship is a freakin leaky boat. some people probably already knew what was goin on and started buying since the last week of august. (run from 87 cents upwards)
now theyre just dumping on the news making easy profit.
Euroz is rating these guys as a buy. A 'speculative buy'. I am still holding LT as I retardedly bought at 1.25 during an intraday-high a couple months back.
Thought I'd share Euroz's analysis:
Price Target: $1.60/sh
Reason For Update:
What We Know • China Railways Materials Commerical Corp Group (‘CRM’) has taken a 11.38% (20m shares) placement in UMC at $1.35/sh to raise a total of $27.2m. • One of the conditions of the placement is the finalisation of a 10yr 3mtpa off take agreement with CRM. • CRM is one of the top 3 steel buyers in China and in 2008 had sales revenue of ~A$20bn. • The placement is subject to due diligence by CRM, CRM obtaining Chinese regulatory approvals and FIRB approval. • In addition UMC has announced a 1 for 10 non renouceable rights issue of new option to exisiting shareholders at an issue price of $0.10/sh to raise ~ $1.55m. Each new option is exercisable at $1.35/sh and will expire on 30/9/2011. • Post issue to CRM, UMC will have cash of ~ $36m – sufficient to complete feasibility studies by the end of the year to determine the optional development path. • CRM has also announced a strategic cooperation with Ferruas Ltd (‘FRS) in which CRM takes a 12% interest and agrees to assist FRS with sourcing financing for construction of rail infrastructure for iron ore exports. • In addition Warwick Resources (‘WRK’) has agreed to a merger with its major shareholder Atlas Iron. Both WRK and FRS tenements are predominantly situated south of Newman and its resources are largely undercover.
What We Think
This deal is positive for UMC being done at a 30% premium to the last price and more importantly helps provide a strategic partner that enhances the development capabilities of UMC.
In our view UMC has the best resource/ ground position of any junior explorer in the Pilbarra. With a current resource of 122mt @ 58.3% Fe and a high grade DSO component of 76.1mt @ 60.2% Fe with low impurties this is an attractive resource. Recent drilling at Railway intersected 180m @ 62.5% Fe from 38m and 182m @ 62% Fe from 38m highlighting the potential for additional resources to be defined –UMC believe a further 25-30mt is possible.
UMC aim to complete a prefeasibility study by the end of CY’09 to define the optimal development route. The deposit is close to surface with some 20-40m of quaternary cover and the initial 5 yr mine plan has a strip ratio of 2:1. Infrastructure is excellent with two RIO railways within 3km of the deposit and a BHP railway within 20km.
Ultimately the best deal for UMC would be to gain access to either railway in a timely manner however now that CRM has taken strategic stakes in two juniors it may have larger, long term ambitions of building its own infrastructure to directly compete with the combined RIO/BHP and FMG. This is probably a +5yr plan.
UMC completed an in house scoping study with six different development options. The study concluded that a 10mtpa scenario producing product on site and delivering this to one of the existing Pilbara producers is the preferred development route. Capex was estimated at US$400m with valuation ranging from $1.4bn (spot prices) to $2.4bn (FY’08 prices).
UMC seem to have revised this production target down to around 3-5mtpa production with potential annual revenues of $400m.
Investment Case:
UMC clearly has a valuable project with an in-situ value of some A$10bn and importantly close to existing infrastructure. Whilst it is too early to value on a dcf basis there is clearly potential for it to be multiples of the current price if infrastructure and/or other development options (CRM) come to fruition. It is a high quality, low contaminent resource that would be sought after by Asian steel mills.
The junior iron ore space is hotting up with CRM concluding two simultaneous placements in juniors, AGO taking over WRK and GBG starting construction at its Karra project. In our view CRM is putting its foot on the more advanced juniors as a long term strategic play to open up the Pilbarra to another group.
Our price target of $1.60/sh is based on a EV per resource tonne of $2 per tonne. Whilst this is a crude method of valuation it should be remembered that during the bull market 18 months ago EV/rsc t valuations of +10/t were not uncommon for juniors.
Post CRM issue UMC will have a mkt capitalisation of $185m with $35m in cash. In the junior iron ore sector it is all about ore quality, infrastructure and the likelihood of the project being developed. Our view is UMC is better placed than many of its peers to ultimately achieve this; the deal with CRM only enhances this view and we maintain our Speculative Buy.
UMC Price at posting:
$1.00 Sentiment: Hold Disclosure: Held
