New Article Sums It UpThe new target prices for some of the names you cover are surprising. The biggest jump belonged to
Alderon Resource Corp. (TSX.V:ADV; OTCQX:ALDFF), which has the Kami iron-ore project in the Labrador Trough, an area known to hold large iron-ore deposits. Alderon jumped an impressive 20%, which means the junior is very sensitive to iron-ore prices.
RC: Companies that have undeveloped assets and are planning to be into production in three to four years are very highly leveraged to the longer-term price of iron ore. Alderon is certainly my top pick in the iron-ore space in Canada now.
This is a great company. It is staffed by iron-ore veterans from Rio Tinto, Iron Ore Company of Canada and Consolidated Thompson Iron Mines Ltd. (TSX:CLM). These are people who have the capacity and experience to help build a mine and operate a mine.
In general, I am not a keen investor in many of these junior stories. So many of the junior stories may have reasonable resources delineated, but they are talking billions of dollars and a decade to get into production. Railways and ports have to be built. Most junior iron-ore stories are going to struggle. If you buy into this thesis that supply is going to overtake demand and prices are going to drop, many of these mega-projects in the hands of juniors are just never going to make it. They're just not going to be there in time.
Alderon, in contrast, has the use of a public domain railway, the Québec North Shore and Labrador Railway. It has the Port of Sept-Iles facilities at Point Noire. Here's a junior with a high-quality asset that can build a mine for less than $1B in four years or so. It doesn't have to build railways or ports. The simplicity of the project is the relatively low cost and being relatively quick into the marketplace. That is going to make all the difference in the world between the juniors that make it and the juniors that just don't quite make it. So, we love Alderon.
TGR: Do you think it's likely it will get offtake agreements and build partnerships? Or do you think it gets taken out before that?
RC: Anything is possible. There is a lot of merger and acquisition activity in iron ore.
Cliffs Natural Resources Inc. (NYSE:CLF) did acquire Consolidated Thompson, but only after it built a mine and took a lot of the risk out of the story. That could easily happen. Other major players in the Labrador Trough would be less likely to go after Alderon, but it would be a complementary asset for Cliffs.
I think what really distinguishes Alderon is that the management team is fully capable of building and operating this mine. It's not simply a junior group of geologists building a
resource and trying to flip it to someone in a sale. These guys are the real deal who can actually make the mine happen.
Building a mine and starting to sell product is where the shareholder gets the tremendous uplift in value beyond simply defining a resource and selling it at a small premium. Alderon is going to have fantastic news flow for the rest of the year?resources in September, preliminary economic assessment, discussions with offtakers and the permitting process. That helps to drive and support my target price of $6.
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