Northland Resources "the cheapest listed near prod Northland Resources "the cheapest listed near production" iron ore play, says Ocean Equities
10:46 am by Deborah Sterescu
() received positive commentary on its latest moves from capital markets firm Ocean Equities Wednesday.
The iron ore explorer announced last week that construction activities at its flagship Kaunisvaara project in Sweden remains on time and on budget, and that it has signed an agreement with Standard Bank of South Africa for a short-term bridge loan of US$50 million.
The loan will be drawn down in two tranches during the next quarter, Northland said, and will be used to support the company's capex investments for the Kaunisvaara project, including logistics, until the end of the the first quarter of 2012.
Standard Bank is an offtake and financial partner of Northland, and in November 2010, agreed to co-ordinate and co-operate marketing and sales for roughly three million tonnes per year of iron ore pellet feed/sinter fines, for at least 10 years of initial production from Kaunisvaara.
Ocean said in its report: "We reiterate our belief that the company is probably the cheapest listed near production iron ore equity. The project is ~35% complete with ~85% of the planned capex committed in procurement contracts."
Northland said the required senior management is now on site at the project, and dispensation for 90-tonne trucks has been granted by the Swedish Transport Authority - another key milestone - with first production still on track for the fourth quarter of next year.
Northland continues to seek an "optimal long-term project financing agreement" and intends to replace the bridge loan with a permanent financing package, to include all logistics, during the first quarter of 2012, it said.
"While Northland securing its final long-term project financing has dragged on since the European summer, the company has remained funded to unimpededly advance and operationally de-risk the development of its Kaunisvaara project which is now only ~12 months away from production and initial exports," Ocean noted.
"Recent joint contact with customers, traders and import agents has given the company increased confidence that Kaunisvaara’s high-grade, high-quality magnetite concentrate will receive a premium in the market and will generate an extremely attractive margin despite the recently volatility in the iron ore market."
Northland and its logistical partners are in the final stages of working out an agreement for the transport of magnetite concentrate from the mine in Kaunisvaara to the port in Narvik. The dispensation granted by the Swedish government is to operate trucks of a greater size than that normally allowed by the EU.
In addition to its offtake and financial partnership with Standard Bank, Northland also has a letter-of-intent financing agreement with its other offtake trader, Stemor, the world's largest independent steel trader, which will provide a credit facility of up to US$50 million as part of an offtake deal for one million tonnes per year of product.
Ocean said that Northland's cheap valuation reflects the markets' concern that the company will not be able to conclude ongoing debt financing negotiations, further compounded by the volatility in spot iron ore prices, and a focus on liquidity and funding risks rather than "bottom-up" business fundamentals.
"We believe Northland currently presents a binary equity investment in that the company is either going to execute the proposed project financing and significantly re-rate, or it will have to complete a significant discounted equity raising," the equities research firm concluded.
"Given the recent debt financings that have taken place by natural resource development and production companies, the stage of development activities for the Kaunisvaara project and the financial/partner arrangements Northland has in place, we would expect the former situation at which time the improvement in iron ore spot prices would also be reflected in Northland’s valuation."
The formation and capitalization of the proposed logistics joint venture and finalization of Northland’s project financing is expected to significantly de-risk its flagship Kaunisvaara project - both of which are expected in the next quarter.
The Kaunisvaara project comprises two iron ore deposits within the Pajala Shear Zone on the Swedish side of the border: Tapuli and Sahavaara. The project is located approximately 100 kilometres north of the Arctic Circle in the municipality of Pajala and near the village of Kaunisvaara.
Aside from Kaunisvaara, the definitive feasibility study for its Hannukainen project continues, to be announced in the first quarter of next year. The project is anticipated to be "the next organic leg" to Northland's story as construction continues at Kaunisvaara.
The Hannukainen property includes two main deposits, both gently dipping bodies of magnetite mineralization enriched in copper and gold. It is located approximately 25 kilometres northeast of the municipal centre of Kolari in Finnish Lapland.
The iron ore explorer was changing hands at $1.39 on Wednesday morning, up more than 12 percent.
https://www.proactiveinvestors.com/companies/news/22889/northland-resources-the-cheapest-listed-near-production-iron-ore-play-says-ocean-equities-22889.html