UMC 0.00% $1.30 united minerals corporation nl

oecean equities update 28th october 08

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    United Minerals Corporation - Iron Ore Update – Railway development study highlights attractive economics (Mon, Oct 22nd)

    UMC has released the findings of its preliminary financial study investigating the economics of potential options for the development of its 64.5mt high grade bedded iron ore resource at the Railway prospect. The preliminary financial model incorporates the findings of an independent scoping study conducted by Prodetheus Limited which have been reviewed by UMC’s recently appointed Project Development Manager, Sten Soderstrom, and forms the Base Case of a 10mtpa of operation; it is a precursor to the upcoming pre-feasibility study which is expected to be complete by mid 2009.
    The findings of this preliminary study highlight the robust nature of UMC’s iron ore assets, applying estimates which we believe have scope for favourable revision in a pre-feasibility study and assuming no extension to mining operations beyond 7 years – ie giving no value to future exploration success or Railway’s other DSO resource other than the Bedded Iron Ore. This is in line with management’s policy of providing conservative guidance to the market. The study excludes a 20mt of detrital high grade ore which would be, in its own right, a company transforming asset for a number of UMC’s junior iron ore peers and we expect this resource to be included in UMC’s upcoming feasibility studies.

    further on Swan declares Pilbara rail lines open...

    Ocean Comment:
    The move from Wayne Swan further illustrates the increasing pressures from government and industry on the traditional incumbents, BHPB and RIO, to open up their existing rail networks and provide 3rd party access to emerging iron ore juniors. While we would expect BHPB and RIO to seek a review of the declaration, we believe it is now only a matter of time before the juniors have access to the Majors’ existing rail infrastructure and see the ability of the juniors to negotiate with existing infrastructure owners in the Pilbara as being significantly enhanced by today’s break-through development.
    The magnitude of Swan’s announcement can be seen in BHPB and RIO’s opening share prices which collapsed ~7% at the open in London, following a flat trading day on the ASX and the announcement of the declaration of rail services only after the close of the ASX. The proposal of full rail track services, not just 3rd party haulage, has a significantly greater potential impact on the efficiencies of the incumbent’s integrated networks, key criteria to the proposed synergies of a BHPB/RIO merger (and for a junior to agree a commercial agreement with a major).
    A further positive for the junior space is the Government’s conclusion that while port capacity may be some what constrained in the short term, medium and long-term infrastructure plans for port capacity (and common user facilities for relatively small tonnage bulk commodity exporters) are sufficient not to impede 3rd party rail access or capacity allocations.
    We believe juniors who are close to existing (or future committed) rail infrastructure, with high grade deposits (suitable for blending with BHPB & RIO’s existing operations), are best positioned to negotiate near term infrastructure access or other forms of commercial agreements (eg mine gate sale, JV etc). We would expect iron ore juniors with “stranded” deposits (such as FerrAus), and potentially large scale operations (such as Brockman, UMC, and Atlas), to best benefit from today’s announcement. Additionally we would highlight that at the current share prices a number of these juniors are priced for failure or limited scale operations (with no rail access).
 
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