Australia | Jul 25 2006
By Chris Shaw
The Mt Gibson (MGX) and Aztec Resources (AZR) merger proposal would create a significant player in the Australian iron ore sector if successful, but for those seeking a more exotic twist Gindalbie Metals (GBG) offers upside from its own iron ore operation with the bonus of a joint venture with major Chinese steel company AnSteel.
The joint venture will see the two companies work to develop Gindalbie’s Karara project, where it has already outlined an inferred resource of 737m tonnes at 37.1% iron. Management’s target is to delineate an initial hematite resource of more than 10m tonnes at 60% iron, its confidence in being able to do so receiving a boost from good drilling results in the June quarter.
During the quarter the company continued infill drilling at Karara and returned results such as 29m at 64% iron and 21m at 63.48% iron, while drilling at Blue Hills North was equally positive with better results including 13m at 66.4% and 65.8% respectively. At the same time, the drilling showed the mineralised zone extends both along strike and at depth, with exploration work to continue as the company builds towards the delineated resource.
The company and AnSteel have now agreed on a target of producing 4m tonnes each of blast furnace pellets and concentrate annually, the output to be exported via Geraldton in Western Australia. This is up slightly on the previous quarter’s target of 7m tonnes of production, suggesting the project is shaping up well.
As part of the joint venture agreement the company received a payment of $8.5m from AnSteel, while its cash position was also boosted by the completion of the sale of its Minjar gold project to Monarch Gold (MON) for $10m and a placement of 43m shares at 37c through Southern Cross equities. The company now has cash on hand of $36m, up from $22.1m at the end of the March quarter.
Potentially adding further spice to the stock’s potential is the fact it was mentioned as a possible target for Mt Gibson prior to that company announcing its merger proposal with Aztec. While such a deal may now be unlikely, it does indicate others have run the ruler over Gindalbie, so corporate activity cannot be ruled out in the future.
Gindalbie shares have traded between 7.8c and 78c in the past 12 months, the stock currently trading at 58c. This represents a market capitalisation of about $250m, meaning the company is not too large a bite for a major mining company that may be interested. Given its joint venture position AnSteel is a possible contender to move on the company in the future, and with annual revenue of about $11.5bn last year a takeover would certainly not stretch it financially.
The FN Arena database shows none of the leading brokers and equity researchers cover the stock, meaning the company’s potential may still be underappreciated by the market assuming it can continue to deliver in terms of its exploration results.