UMC 0.00% $1.30 united minerals corporation nl

ioh valuation $1.80 umc valuation $1.30

  1. 6,111 Posts.
    IMO. The UMC Railway deposit (location, location) is worth more to BHP than that of IOH such it should have fetched more.

    Iron Ore Holdings (IOH.ASX)
    Initiation - a growing resource surrounded by BHP & RIO.
    Buy PT $1.80

    Introduction. IOH’s focus is extracting value from its ~169mt of high quality direct shipping iron ore resources in the Pilbara. In July 2008 the Company entered into a Memorandum of Understanding (MOU) with Rio Tinto (RIO) for an annual Mine Gate Sale of up to 1.5mtpa of DSO pisolite from the Phil’s Creek Project. However, it is the growing Iron Valley resource of 160mt @ 59% Fe that may prove to be the company maker.

    Investment view. We expect negotiations between the WA State Government, RIO and BHP over State Access Agreements will result in some form of third party access. As a result we anticipate all iron ore juniors will benefit, but note IOH as a stand out due to its growing resource in a key location and established relationship with RIO.

    Consolidation opportunities. Given the proximity of IOH’s assets to RIO’s 52mtpa Yandicoogina mine, the recent deal BHP has done with UMC and the step changes in infrastructure efficiency the proposed RIO/BHP iron ore JV should realise, there is a compelling argument for RIO (and possibly BHP) to make a full bid for IOH. Alternatively, given the ultimate size of Iron Valley is unknown, a JV style deal would allow both parties to share the risk and rewards in the growing resources.

    Favourable outlook. We believe the outlook for steel making materials will remain firm as steel production in 2010 rebounds strongly from the 2009 slump. The rebound in global steel production is being led by China, which achieved a monthly record of steel production in August 2009 of 52.3mt, up 23% on August 2008. Chinese crude steel production for the eight months ending August 2009 was 369mt, 5.6% higher than the 349.4mt in the same period in 2008.

    Valuation. We have used BHP’s bid for UMC as the key valuation matrix in determining a valuation for IOH. At $1.30/share, the EV/t resource valuation for UMC is $1.24. Applying this to IOH’s 190mt, we arrive at an EV for IOH of $235.6m and Market Cap. of $249.1m. This implies a share price of $2.12/share or $1.92/share fully diluted.

    However, in our view the Iron Valley resource (160mt @ 59% Fe) is comfortably large enough to substantiate an independent operation subject to infrastructure access, which we believe will be forthcoming.

    Recommendation. We initiate coverage on IOH with a BUY recommendation. We have set our price target to $1.80/share. We are attracted to the company’s growing Iron Valley resource located next to key infrastructure assets.

    Short term catalysts include:
    · A formal Sales and Purchase Agreement reached with RIO for Phil’s Creek;
    · Further corporate consolidation of the iron ore sector in the Pilbara;
    · Positive developments regarding infrastructure access; &
    · The Scoping Study for IOH’s Iron Valley project.
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