RBC Target-Post PEA-6Jun2012 RBC Capital raises Afferro Mining target to 275p after Nkout PEA
6th Jun 2012, 4:02 am by Sergei Balashov
RBC Capital Markets cheered the preliminary assessment report for ’s (LON:AFF) Nkout iron ore project in Cameroon, lifting the company’s target price to 275 pence from 220 pence previously.
The PEA, which was released on Monday, estimated a post-tax net present value in a range between US$1 billion and US$4.6 billion, assuming production of between 15-35 million tonnes annually (mpta) and funding costs of between US$2.5 billion and US$3.9 billion.
Afferro added it had already received “significant” interest from potential partners to fund the project with talks ongoing.
According to RBC analyst Patrick Morton, the PEA confirmed that Nkout is a large scale project.
Morton’s new target represents a massive premium of over 500 percent to Thursday’s closing price of 41.75 pence, which values the group at around £44 million.
The pre-financing net present value (NPV) of Nkout was estimated at 1,398 pence per share.
The analyst arrived at the price target after applying a heavily discounted multiple of 0.2, well below the 0.5-1 average used for other emerging iron ore companies to reflect the "significant financing and development risk".
“If the company can attract a partner to help finance and develop Nkout on attractive terms, we see significant upside to the target multiple and share price,” said Morton.
The analyst also noted that the government has confirmed plans to allow multi-user access to the rail and port infrastructure being developed for Sundance Resources' world-class Mbalam project not far from Nkout.
This, he said, means that the infrastructure solution is not as risky as the market assumes, adding that with US$55 million in cash it is fully funded for the next two years of operations.
The upcoming potential catalysts for the share price are the release of an updated resource, project partnering and the completion of the pre-feasibility study.