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The boys at Southern Cross Equities are even more bullish, setting a 12-month target for Gindalbie of $1.64 a share, with further upside to $2.02 a share should magnetite production be increased from the initial rate of 8 million tonnes a year to an annual rate of 12 million tonnes a year.
http://www.businessday.com.au/business/green-light-for-gindalbie-to-crack-karara-20091108-i3jl.html
Green light for Gindalbie to crack Karara
BARRY FITZGERALD
November 9, 2009
THE $2 billion Karara joint venture between Gindalbie Metals and China's AnSteel in Western Australia's mid-west region has hit the ground running since receiving the final environmental clearance for the project late last month.
The joint venture is already knocking down trees in early earthworks for the project, and by June next year there will be 1000 workers on site to make certain the project hits its first production target of 2010 for hematite, followed by first production of high-grade magnetite in 2011.
Before any greenies out there fret about the trees, it's worth noting that the 30-year-plus project will occupy an area of less than 100 hectares.
That's a fraction of the size of the mid-west's average-sized pastoral property (2500 hectares), none of which are known for their green canopies or their ability to generate the sort of returns to the nation that Karara will.
Receipt of the last of the environmental approvals means that it has taken about 3 ½ years for the Karara joint venture to get to the starting line. In China, they do things a bit differently.
In the same period, AnSteel has designed and built a $US5 billion steel mill in north-eastern China. That mill is now being fed by iron ore from Brazil, pending the completion of Karara.
But enough of the ridiculous amount of time it takes to get things done in Australia.
The point today is that the market's frustration with the delays in Karara getting started have now passed, forcing a re-rating of Gindalbie in the process.
Unlike a host of other iron-ore hopefuls in the mid-west, and the Pilbara for that matter, Gindalbie has a real project on its hands, one that is plugged into China's ongoing urbanisation and industrialisation boom more than most, thanks to AnSteel's 50 per cent stake in the project and its 36 per cent stake in Gindalbie.
Gindalbie closed 3.5 ¢ higher at 85.5 ¢ on Friday. The question now is, where to from here?
Back on October 30, when the final environmental clearance came through, Gindalbie was trading a bit higher than Friday's close at 89 ¢ a share. UBS said at the time that the stock was trading at a 32 per cent discount to a (base case) net present value of $1.30 a share.
The base case reflected the Karara joint venture's initial plan to start out with annual production of 3 million tonnes of direct-shipping (hematite) iron ore and 8 million tonnes of magnetite.
''We also highlight the potential for significant value from expansion, with the joint venture holding aspirations to get to 30 million tonnes a year [once the Oakajee Port is built by others, with the help of contributions from the West Australian and Federal governments],'' UBS said.
It noted that if an 8-million-tonne-a-year expansion was locked in by the joint venture, it would be worth another 50 ¢ a share to its Gindalbie valuation.
The boys at Southern Cross Equities are even more bullish, setting a 12-month target for Gindalbie of $1.64 a share, with further upside to $2.02 a share should magnetite production be increased from the initial rate of 8 million tonnes a year to an annual rate of 12 million tonnes a year.
''All of this is to be shipped through Geraldton Port. Longer term, the Oakajee Port and Rail Project provides the opportunity to further double production … with even greater potential share-price upside,'' Southern Cross said.
There are still a couple of loose ends for Gindalbie and the joint venture to tie up before the market re-rating of Gindalbie can get into full swing.
First, there is finalisation of the $US1.2 billion ($A1.3 billion) in Chinese project financing for the project. Then there is completion of the pricing mechanism for sales to AnSteel or, more to the point, the size of the premium to Pilbara iron blends that it will pay for Karara's magnetite concentrates (lower-grade magnetite gets upgraded to a higher-grade product with less of the nasty impurities in direct-shipping ore).
Both are tipped to be wrapped up early in the New Year. And, depending on who you talk to, contract iron-ore prices by then could be 10-per-cent-plus higher than last year's settlement.