working with the enterprise value - and chart

It's been quite a few weeks since my last post and I haven't followed HC lately. Sorry if I duplicate.

Firstly, I was obviously very supportive of the recent pro-rata issue and remain so, even though I would have liked to have seen some news, such as the possible resource upgrade this quarter. The share price has slipped below the raising price, nonetheless with a long term view I remain a happy holder and at this point will look to add to my holdings.

The Past

I will look in the rear view mirror for the first part of this post, and then look at future prospects. The first graph we have made is simply a track of the Enterprise Value (EV) versus the Mineral Resource (Indicated and Inferred). This chart is for fundamental purposes, but the first thing I notice is the pennant consolidation taking place on a monthly timescale. I will look at the monthly price chart separately though.



From the Mineral Resource we can see steady progress was made proving up a JORC category resource of nearly 700Mt, but this has slowed of late. Regardless, the resource was still being proved as the EV consolidated in a sign that the value of IOH was no longer responding to iron ore. That is, investors now realise there are commercial quantities of the stuff and want to see the plan to develop it. The answer is the new CEO and PFS, which has already began for Iron Valley.

On the next chart we have the EV/Resource (in red) commencing from the early 47Mt Extension resource, because before this the EV/Resource figure is skewed. The share price is obviously directly related to the EV, however what this chart does illustrate is the diverging trends in EV/Resource and share price. This divergence can be seen from August last year and we should all remember the catalyst - Rio Tinto and the last Phil's Creek update 09 August.



So both graphs point to one thing - it's not about resource now, it's about project development and getting iron ore to the market.

Overall, our fundamental assessment of IOH hasn't changed, however from a share price point of view we are just slipping in time, not value. This means it won't affect our investment outcome (the future value of our investment), but it will apparently take longer to realise, thereby reducing the present value. Fundamentally this is the reason for the share price decline as shown on the two graphs. When the mine-gate sale failed, so did the opportunity for short term cash flow.

The Future

For the remainder of this year we have some impressive milestones and the cash to support them. The exploration target is 1 billion tonnes (including magnetite). But from the fundamental assessment above we know the importance lies with Pre-Feasibility and moving onto a Bankable Feasibility Study to determine economic viability. Plus we have negotiations being made and possible infrastructure deals with FMG being the most likely candidate in the short term.

The Chart

The monthly chart (which from a technical point of view takes priority of weekly or daily) shows a symmetrical triangle forming. There are usually 4 points from the first peak prior to a breakout, meaning this triangle is quite mature. A drop below $1.24 would be very bearish and cause a breakdown in this pattern, however a push through resistance at $2.20 would see a test of the previous peak and then if a new run up took place the ultimate target is $3.80 (Fibonacci Extension). See also how the money flow on the monthly chart has turned and is back into positive territory (+50).



Conclusion

Fundamentals point to the importance of project development and we all understand this process is being executed by management. They have the resource and they need to get it to market. Technically, the monthly chart is displaying a textbook triangle consolidation with definable targets (up and down!) that is mature and may break out either way in the next few months.