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ABID - Ferrex - Due Diligence and Valuation Report




Arrowhead BID


27 Mar 2013





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Ferrex Plc., an AIM-listed exploration and development company, focuses on iron ore and manganese projects in Africa. Currently, it has two iron ore (Malelane and Mebaga) and two manganese (Nayega and Leinster) projects in South Africa, Togo and Gabon. The Malelane iron ore project in South Africa is a part of the Archean Barberton Greenstone Belt, an old and highly prospective belt for minerals. The project’s JORC compliant inferred resource showcases 139MMT @ 37% Fe; with an upside potential as the resource estimate is over 1.1km of the total 14km strike length. In January 2013, the company released an updated scoping study on Malelane, which highlighted the economics of the project, with an NPV of 523MM at a 10% discount rate and an IRR of 72%. The company is expected to complete the pre-feasibility study by 2013 and be developed by 2015. The Nayega manganese project has five exploration licences covering an area of 92,390ha with a defined JORC-compliant indicated resource of 7.3MMT at 14.7% Mn. Initial metallurgical test work and scoping study for the project highlighted low capex and opex. A definitive feasibility study (DFS), which is expected to further define the low-capex and opex economics of the project, is currently underway and due to be completed in H1 2013. The Leinster manganese project in South Africa is in the Leinster Basin near the Kalahari Manganese field, the largest metallogenic province of manganese mineralization in the world. Based on historical work, the project has an estimated JORC-compliant exploration target of 5.5 to 8.7MMT at 28.6% to 31% Mn. Ferrex plans to define a JORC-compliant resource in 2013. The Mebaga iron ore deposit in Gabon forms a part of the 309 km2 Ngama exploration licence granted to Ferrex in January 2012. The exploration licence is located in a prolific iron province which hosts Archean banded iron formation (BIF). Work carried out in the 1960s indicated that the project has high-grade direct shipping ore, with an exploration target of 20MMT at 60% Fe and 50MMT at 47% Fe. Ferrex is implementing a fast-tracked exploration plan for the Mebaga deposit to define its resources. Ferrex plans to be a mid-tier, low-cost producer of iron ore and manganese for the steel industry by advancing its current assets and expanding its portfolio through acquisitions. Its near-term plan is to further explore its Nayega project, with a view to bring it to production for positive cash flows. The positive cash flows will be used to develop other projects in its current portfolio. Given the due diligence and valuation estimations are based on the discounted cash flow method, we believe Ferrex’s fair value per share is between £0.03 and £0.07 . The valuation is based on the company’s Nayega and Malelane projects.

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