petra coverage

We maintain our BUY recommendation following the
release of the GRR June 2011 quarterly production
report. Progress continues on the Southdown (70%)
definitive-feasibility study, draft completion planned for
the end of this year.
Product pricing remains robust, with GRR reporting
an achieved price of US$222/t in the quarter. While
pellets shipped in the quarter (517,00t) was well above
the March 2011 quarter (210,000t), near term high
costs engendered by current mining saw direct
production costs rise. High mining costs are likely to
persist into the September quarter and taper thereafter.
We value GRR at $1.11/share.
June 2011 quarter still carrying higher costs
?h The Savage River mine pit wall collapse (June 2010)
and the subsequent bringing forward of wall cut-back
plans will continue to impact results until late this year.
?h This pit wall profile work and associated materials
movement, coupled with truck fleet rebuild timing has
meant higher cost product opex with direct cost of
pellet production of $123.67/t compared with $62.01/t
in the pcp and $98.63/t in the March 2011 quarter.
?h The June quarter was the first where product sales
were delivered under a quarterly based price regime.
Pellet price achieved was US$222/t and the pellet
premium achieved in the range of $40-45/t. GRR is
unhedged and we estimate quarterly product revenues
of A$108M. We assume a robust price regime over the
remainder of the year.
June 2011 production outcomes
?h 502,000t concentrate produced (641,000t pcp).
?h 32.3% (DTR) weight recovery (46.2% pcp).
?h 521,000t pellets produced (639,000t pcp).
?h 517,000t pellets shipped (581,000t pcp).
?h Direct cost pellet production $123.67/t ($62.01/t pcp).
Southdown progress
?h The prefeasibility study (PFS) for the Southdown
project (70% GRR, 30% Sojitz) was released in May,
outlining a 19-40 year project @ 10Mtpa concentrate.
?h Permitting and approvals are in place for all substantial
elements of the Australian based part of the project (ie.
to concentrate on ship).
?h The project has a Definitive Feasibility Study (DFS)
underway with expected completion early 2012. The
estimate for the DFS cost has been reduced to about
$70M. At 30 June 2011 GRR had $144.4M of net cash
on the balance sheet and the funding clearly in place
for its share (about $50M) of the DFS.