The value of Beowulf Minings iron ore, compared to african iron

Iron ore from Ferrex compared with Beowulf MiningJohn Prior of the Brittish brokerfirm Collins Stewart have been looking into a company called Ferrex. We have used Mr Priors Ferrex calculations and have come up with a couple of interesting figures that we are presenting down below. What our calculations don´t show is the potential high premium values that are on top of this value, due to Beowulf Minings excellent iron ore quality and location etc in relation to the Ferrex Kongo play.

Ferrex – FRX LN – MC £15m – Maiden Resource

  • Low cost low capex: This morning’s announcement confirms the company’s promise at listing of defining a DSO resource at Malelane. The area is blessed with excellent infrastructure water, power and a rail siding within 6km. The upshot of this is that the company should be able to rapidly develop a low cost operation for a low capital investment. The 139mt JORC inferred resource, announced this morning contains 56mt of Fe metal at an average grade of 40% Ca Fe (calcined Fe – the iron content post water & volatiles being driven off by heating). The current resource is over a 1.1km strike length of the total 14km long mapped outcrop of banded ironstone formation (BIF) where independent consultants, Coffey Mining, have set an exploration target of 930Mt @ 35% Fe. Today’s announcement would seem to indicate this is on the conservative side.
  • Metallurgy Positive: Initial metallurgical investigation has shown that 3.5% of the total resource would be saleable as a direct shipping ore (5mt @ 52.2% FeO3). A further 37% of the resource (51mt @ 44.3% FeO3) would require only minor beneficiation before sale. This would involve a rough crush to 425 microns followed by dense media separation to produce a saleable concentrate of 60 to 65% Fe. The company believes the current resource base is adequate to sustain a 20 year mine life at a rate of 3Mtpa. The on-going drill program will elevate the resource to the higher confidence indicated category and wide step out holes will demonstrate the continuity of the BIF along strike for the 14km.
  • Significantly undervalued. African Iron was recently acquired by Exxaro for A$338m. While African Iron has a similar JORC resource estimate to Ferrex (55mt of contained Fe), its exploration target was 5 times bigger. However, the project is more remote requiring self generated power but close to a rail line in the Republic of Congo. While one would expect a premium for a larger asset on this basis Ferrex’s Malelane asset would be valued at $280m (£180m), a 12 times premium to the current company value. Highlighting in our view the potential for this share price to climb. Allied to this is the track record of the management who have successfully delivered for investors previously in Chromex and African Platinum.

Our latest JORC data of Kallak N is presently at 131,6 Mt at 28% Fe = 36,8 Mt Fe. Based on value calculations as of John Prior for Ferrex this represents a total value of GBP 118 M (USD 1,3/t).

Similar calculations for Ruoutevare which is JORC at 140 Mt at 39,1% Fe = 54,7 Mt Fe shows that Ruoutevare should be valued to GBP 180 M (USD 1,9/t).

Although not yet JORC classified calculations for Kallak South, the deposit are estimated at 220 Mt at 31 % Fe = 68,2 Mt Fe we believe that by similar calculations Kallak South should be valued to GBP 219 M (USD 1,5/ t).

Thus Beowulf Minings total Fe assets at Jokkmokk can be valued at GBP 118 + 180 + 219 = GBP 517 M (or about USD 1,5 / t) using similar relative calculations as those of Ferrex. Beowulf Minings present marketcap is at GBP 30 M, thus BEM is valued at 17 times (517/ 30) premium to our current company value.

Including only Kallak North and Ruoutevare Beowulf Minings JORC numbers represents a value of 180 + 118 = approx GBP 300 M (thus a premium of almost ten).


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