Cleveland Offers Brazilian Exposure

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 – Cleveland Mining developing projects in Brazil
 – Company offers both gold and iron ore exposure
 – Gold production to commence this year
 – DJ Carmichael initiates with Spec Buy rating

By Chris Shaw

Cleveland Mining ((CDG)) operates in South America and has a focus on developing projects into operating mines. At present Cleveland has interests in both gold and iron ore operations in Brazil, the former via the Premier Gold project and the latter through the a combination of iron ore projects.

On the back of a recent site visit broking firm DJ Carmichael has formed a positive impression and has initiated coverage with a Speculative Buy rating. 

Part of this reflects the fact Cleveland has been able to move the Premier project from brownfields acquisition to production in less than a year. Commissioning at the project is imminent and by early next year DJ Carmichael expects production will have increased to around 20,000 ounces per year.

At its peak the Premier project is likely to be at least a five-year, 40,000 ounce per year operation with cash costs of around $300 per ounce, with production expected to hit 40,000 ounces by the end of 2013.

As DJ Carmichael notes, there is potential for the project to be expanded in coming years given exploration upside at both Premier and the nearby O Capitao project. Further aggressive exploration at Premier is planned from next month, while the target date for a JORC resource at O Capitao is early in 2013. Cleveland owns 50% of the Premier project.

In iron ore, the Ferradura and Porto Grande projects are located in what is proving to be an attractive iron ore province given the likes of Beadell Resources ((BDR)) and Anglo American have operations nearby. The target for Ferradura, where Cleveland holds a 100% interest, is production of five million tonnes per year by 2014 with a mine life of more than 15 years and cash costs of around $55 per tonne. Capex is estimated at around $250 million.

With further drilling work to be undertaken, DJ Carmichael suggests an initial resource estimate could be released to the market in the March quarter of 2013, while a Definitive Feasibility Study could be released as early as the June quarter. Work at Porto Grande is less advanced but has identified some deposits similar to those found at Ferradura.

As well as these projects, Cleveland has entered a strategic alliance with BC Iron ((BCI)) aimed at developing new iron ore projects in Brazil. Given BC Iron has a good track record of exploration and operational success the joint venture is well regarded by DJ Carmichael. The Ferradura project does not form part of the joint venture.

Giving DJ Carmichael increased confidence in the outlook for Cleveland is a strong management team, that includes the likes of David Mendelawitz as managing director. Medelawitz was previously in charge of business improvement at Fortescue ((FMG)), while other executives previously held senior positions at Fortescue. Cleveland chairman Donald Bailey was previously at Rio Tinto ((RIO)).

Looking forward, DJ Carmichael suggests the Premier gold project will be something of a blueprint for Cleveland as it show the company has the skills needed to get a project up and running in Brazil. This should be an advantage as further projects are developed in that market.

A lack of marketing means Cleveland has flown under the radar for many investors, something DJ Carmichael sees as adding weight to its Spec Buy rating. Given a market capitalisation of around $125 million Cleveland receives little coverage in the broader market. No brokers in the FNArena database offer research on the company. 

Having traded in a range of $0.285 to $0.95 over the past 12 months, shares in Cleveland Mining today are weaker in a down market. As at 1.05pm the stock was 2c lower at $0.58.

 
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