Small Caps | Nov 25 2011
– Amex Resources developing the Mba Delta Iron sand project
– DJ Carmichael expects first production and sales early in 2013
– Project stacks up financially
By Chris Shaw
Unlike many ASX-listed iron ore juniors, the main project for Amex Resources ((AXZ)) is not located in Australia but in Fiji. DJ Carmichael notes development activities at the Mba iron sand project are well advanced, with first magnetite concentrate expected to be produced and shipped in the first quarter of 2013.
Post a site visit last month DJ Carmichael has initiated coverage on Amex Resources with a Buy rating, setting a price target on the stock of $2.13. This is around double the current share price.
Amex Resources recently released a preliminary report for the Mba Delta Iron project, DJ Carmichael noting the results imply the project stacks up financially given a net present value of US$454 million. This is based on a low capital cost of US$60 million, estimated operating costs of US$28 per tonne and a 20-year mine life based on an indicated resource of 220 million tonnes.
At present the project is expected to produce around 750,000 tonnes per year of 58% Fe product. What should help keep costs low is the potential for substantial credits to be received from the vanadium contained within the iron sands.
A further advantage is Amex has a symbiotic relationship with the Fijian government, as dredging of the Mba River is required anyway to reduce flooding in the Ba township and local villages.
As well, DJ Carmichael notes mined material will be hauled by self-propelled barge to a nearby port, meaning no rail or road transport infrastructure need to be built. Comparatively low assumed iron ore prices have been factored in, leading the broker to suggest its model is conservative.
As evidence of this, if the model was adjusted to increase the mining rate to double its base case, a $30 per tonne credit for vanadium retrieved from the iron ore smelter's slag is added, there is a 50% discount to the tax payable for the first five years factored in and efficiencies from higher production are also included, DJ Carmichael's valuation would increase to $4.70 per share.
This includes only a nominal value of $10 million for all of Amex's regional exploration portfolio and applies no value to prospective iron ore assets in Western Australia. These include the Mount Maguire and Paraburdoo South assets, where further exploration work is planned.
A bankable feasibility study for the project is underway, DJ Carmichael noting detailed design, engineering, procurement and construction is scheduled to commence in the next quarter. Marketing is also well underway, as more than three tonnes of sample concentrate have been sent to end users and strategic partners in China.
DJ Carmichael notes all potential customers have to date expressed interest in purchasing Amex's product. Demand for iron sands is increasing, as the material is an alternative iron ore feedstock for use in steel making.
Impurities are often an issue for iron sands projects but DJ Carmichael suggests the Mba Delta Iron sands project should produce a concentrate with low impurities.
Given a current market capitalisation of around $70 million, Amex Resources is not coverage by any of the eight brokers in the FNArena database. Amex shares today are unchanged with a last sale price of $0.97. This compares to a range over the past year of $0.185 to $1.50.
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