who said end of dream run for ago yesterday, page-8

....I apologise profusely......Glad I got back into AGO yesterday instead of taking the money and running off to MXR. The Hartley's article certainly got things moving this arvo , and while their $5.25 target isn't as generous as Merrills' $6 , it's probably more realistic in the current environment. So don't go ape s..t and bet the house but don't give AGO up altogether either imho.

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Atlas Iron Limited

Brief Update Note
Stock: Atlas Iron Limited (AGO $3.55)
Valuation: $5.25 (Previously $3.51)
Market Cap (Full. Dil.): $1016.7m ($1191.0m)
Issued Capital (Full. Dil.): 286.4m shares (335.5m)
Cash (as at 31 March 2008): $160m est.

Date: 11 June 2008
Resources Analyst: Andrew Muir
Details:
RIO Settles 95% Iron Ore Price Rise – It has been reported in the media that Rio Tinto Limited (“RIO”) has
settled on a 95% increase in the iron ore price with a number of small Chinese steelmakers. However, it is
unlikely that the larger steelmakers will agree to a rise over 85%.
Valuation Upgrade to $5.25/share – We have updated our Atlas model to incorporate the production profile
as per the Company’s last presentation. We have also incorporated an 85% increase in the iron ore price, in
line with the settlement by RIO. However, we have assumed that all ore is sold at benchmark and none at
spot. Our upgraded valuation for Atlas is now $5.25, up from $3.51/share.
Key modelling assumptions:
o Pardoo commencing at 1mt pa direct shipping ore (DSO), rising to 3Mtpa in 2010 and staying steady out
to 2014.
o Abydos production commencing in 2010 at 3Mt pa, rising to 6Mt in 2011, and 9Mtpa from 2012 out to
2014.
o We have not incorporated any production from the mid west tenements due to their early stage.
o We have also generated a discounted cash flow valuation for Ridley Magnetite, based on a 35year mine
life, producing at 10mt of concentrate pa, $2.0b in capital expenditure, and operating unit costs of $40/t of
concentrate. We have then discounted this value by 50% due to the early stage of the project.
State Government to Introduce Rail Haulage Regime – The Western Australia state government intends
to introduce a regime that would enforce BHP Billiton Ltd (“BHP”) and RIO to haul iron ore produced by junior
iron ore miners. The government is introducing the changes to allow the development of stranded iron ore
deposits. The junior miners would be required to pay for the upfront costs of expanding BHP's and RIO’s rail
systems to allow for delivery of the ore, as well as being charged a haulage fee. The juniors would be
responsible for the cost of loading and unloading facilities at both the rail siding and port. If a commercial
agreement is not able to be reached between the junior miner and rail operator, the dispute would go to
arbitration.
The proposal is subject to public consultation and may not be ratified until at least next year or possibly later.
Public consultation on the proposal closes on July 25 with the treasury department to provide a final report to
Cabinet by October.
Impact:
The settlement by RIO of up to a 95% iron ore price rise is a significant increase on the general expectations
of a ~71% increase. Though the major steelmakers are unlikely to agree to such a high price, it indicates that
there is still huge demand for inputs to steel. With this increased price, as well our increase in production
assumptions in line with Atlas’s expectations, our valuation for the Company has increased by ~50%.
The introduction of a rail haulage regime for the Pilbara would potentially have a dramatic effect on the
viability of a number of stranded iron ore deposits that were previously unable to get access to BHP and
RIO’s railway. Atlas is not reliant on this regime for its Pardoo project due to its close location to the port, but
it should be of benefit for Abydos, particularly as production ramps up to 9mt pa. Atlas also has the potential
to benefit via its 15% stake in iron ore explorer Warwick Resources, which has 1,700km2 of prospective
tenements near Newman.
Going forward we are expecting a number of significant announcements by Atlas including offtake
agreements for Pardoo; environmental approvals in mid-July and the commencement of mining shortly
afterwards; resource upgrades for Pardoo, Abydos and Ridley; and the completion of the Ridley pre feasibility
study in Q4 CY2008. We continue to rate Atlas Iron Limited as a Speculative Buy.