" Please note from this report:Bellzone Mining - Sell (Page...

" Please note from this report:

Bellzone Mining - Sell (Page 15)

Equatorial Resources - Hold (Page 18)

Sable Mining - Hold (Page 22)

Sundance Resources - BUY (Page 25)

Zanaga Iron Ore - Hold (Page 28) "

Very good finding and thanks for the infos (pikpika)....

What I can see from this report are despite the downside risks of iron ore price and demand projection for LT, the analyst seems having a favour for SDL outlook, but not for the 4 others in West Africa region.

Beware of downside risks !!!
Key points from their analysis with potential downside risks for Iron Ore price:

1. Consensus outlook is for downside risk to iron ore prices over the next couple of years.

2. New projects coming on stream should plan for a CFR price with a 62% benchmark of below $120/t.

3. Development potential not scale is key to upside for exploration juniors....Projects with potential for development coming in after the “glut” in iron ore supply could attract more interest then large scale projects which are “stranded” by high capital investment requirements for rail, port and power.

4. Valuation metrics such as EV/tonne to assess comparative value may no longer hold as the key to value is access to market rather than size of resource.

5. Window to development beyond 3-5 years could now be an advantage....The new supply of iron ore will be dependent on the availability of capital outside the majors. While the cash cost of supply of iron ore looks compelling in terms of the availability of projects at low operating cost per tonne, the reality is that a number of these projects require a significant amount of infrastructure investment in new regions in West Africa – the scale of investments projected are likely to take longer.

Despite the above risks (especialy point 3 and 5 above) , the analyst has rated a BUY for SDL.

The following points could explain the reasons why SDL (ticked all the boxes) could be de-risked ... as funding could be in place despite a high Capex involved:

1. Projects that are perceived to have an infrastructure solution are ranked higher than projects with no framework on infrastructure.

2. The increase in supply from low cost majors is now likely to be the driver of prices. Greenfield projects coming on stream will now need to be at the lower end of the cost curve to justify the large capital investment required to bring projects on stream.

Previous high prices had been driven by the high cost of production in China required to deliver the marginal tonne to the Chinese steel mills. When demand remains high the cost curve can be the determinant of price. However, as demand weakens, the marginal cost argument no longer holds and high cost production no longer becomes viable.

3. Haematite projects with DSO offer the best economics and potential for juniors and companies with these projects will command a premium if infrastructure is also in place....Projects that have a large DSO component based on high grade haematite provide the most economically viable option for juniors in this space. The case for haematite has become more compelling against a backdrop of large low cost supply coming out of the Pilbara.

4. Diversification by players outside the majors could be a key support for projects in West Africa.

5. The development of a number of projects in West Africa will have key social and environmental challenges with some projects being sited in pristine primary jungle. Environmental issues need to be viewed in the context of existing policy on national parks already created in countries such as Gabon and Cameroon, which would act as a mitigating factor.

6. A number of projects are exposed to cross border issues such as Sable and Sundance where projects are located and mined in one country and transported cross border to the port in another country. Fiscal terms and ownership of cross border agreements need yet to be tested.

7. Pellets offer an option to command premium pricing against a drive to improve energy efficiency and cut back on pollution

Pellet premiums saw an improvement in the second half of 2013 as a result of a combination of better demand from European steel mills looking to manage emission targets ....

China is also looking to cut pollution which has led to the idling of some sintering plants in the country, which could lead to an increase for imported pellet and lump substitutes.


Their valuation ...:

1. We estimate a geared NPV of US$5.5bn for the project and ungeared NPV of $3.85 bn and IRR of 26%. Development assumes significant debt and royalty pre-payments.

2. We assume an iron ore price of $120 CFR, a discount rate of 12% and shipping costs of $30/t and no premium for fines or concentrate product.

Note their Iron ore FOB forecast LT is $100/t (similar to SDL preso "Mining Indaba 2014", cash flow projection based on US$100/t CFR China, with Capex1 payback in approx 3 years) :

"Our forecasts for iron ore prices – CFR 62% are $120/t for 2014 and 2015 with a long term price of $100/t."