LON:AFF^J17 | Affero - An Iron Investment For 2011

21st Apr '11 by Isaac

9 comments 11226 reads

Affero Mining

(AIM : AFF, TSX : AFF)

Affero was formed by a split of African Aura Mining last week. The company proposed to split AAAM into two companies, Gold and Iron. Shareholders recieved equal amount of shares in AUE and AFF post split. The company split AAAM as they felt the market's did not value each of the assets correctly & believes there are certain type of commodity investors who are focused on a particular commodity.

More info here : http://www.investegate.co.uk/Article.aspx?id=201011080700097517V

Shares in Issue : 86.3m

Market cap £123.4m at 143p/share

The company has $15.9m in cash.

The top shareholders are :

CDS & Co 17.25%
JP Morgan Asset Management 9.96%
OAO Severstal 4.73%
Collins Stewart 3.35%
BANQUE BENEDICT HENTSCH & CIE SA 3.86%

Investment Case

According to Panmure Gordon's note today

The company has 2.0bn tonnes of attributable iron ore resources but a market cap of just US$200m which we think presents a significant value opportunity.

We believe that Afferro Mining offers a compelling combination of two very large, long term iron ore projects in two different African geographies.
Our DCF valuation before risk adjustment is 2,047p per share, and our risk-adjusted value is 491p per share – more than three times the current share price.

Affero's main Iron asset is Putu, in southcentral Liberia.

Iron ore is a bulk material and the location of the deposit has great influence on the economics of a project. Putu is particularly favourably, situated just over 100km from the Atlantic coast and importantly the terrain between it and the coast gently sloping and is free from any major topographic features.

Licence: 425 km²
Target: Haematite/Magnetite deposit with potential strike of 12km
Resource: NI 43-101 Inferred resource estimate of 1.07 Bt @ 37.6% Fe from 2.6km of strike
Location: South East Liberia 100km for Atlantic Coast
Status: 4,000m drilling program completed
Current program:27,000m drill programme and airborne survey
Ownership: 38.5% Mano River Iron Ore Holdings, 61.5% Severstal Group

Nkout, Cameroon

Overview

Ownership: 100%
Resource: 1.04Bt at 34% Fe (from 3km section)
Management Target: 4Bt
Licence size: 998 km²
Test work proves high grade concentrate and sinter fines potential
Target: Major geophysical anomaly 20km…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Isaac

21st Apr '11

Also worth reading the April Presentation from the company :

http://www.afferro-mining.com/i/pdf/presentations/AFFERRO-Presentation-April-110405.pdf

Slide 19 compares the valuation of other listed Iron companies which give an indication as to how cheap AFF is in comparison.

24th Apr '11

Big article in Saturday's Telegraph about Affero

afferro mining

Putu Iron Ore

Afferro (38.5%) joint venture with Severstal (61.5%)

2.4 billion tonne resource at 34% Iron grade

Targeting greater than 3.5 billion tonnes

Favourable metallurgy for saleable product

Comparatively low capital expenditure

Lower quartile operational costs projected

Afferro Mining’s iron ore project is also progressing to plan. In the iron ore project Afferro is a 38.5 percent joint venture partner with Russian giant Severstal Resources (the mining division of London- and Moscow-listed OAO Severstal). This operation is at Putu, and last year was granted a 25-year renewable Mineral Development Agreement by the Government of Liberia. Putu currently has a 2.4bn tonne resource and is expected to exceed 3.5bn tonnes.

Production of iron ore is expected to come on stream in 2016, and in the meantime extensive studies are being looked at in relation to infrastructure development. Putu is 120km from what could be a potential deep-water port, and the intention is that a possible road and rail network could be in place before production starts at the mine. Preliminary surveys show that there are no barriers to stop this infrastructure from being developed.

Such proposed developments will add to the improving infrastructure of Liberia that is being driven in part by overseas investors. Both Aureus and Afferro understand that to operate in a country such as this, contributing to the country is as important as developing their mining operations. As such, both take their environmental and civic responsibilities seriously. They are currently involved in building clinics, local schools, improving water supplies and providing employment opportunities. For example, of the 120 workers based at the New Liberty operation, 105 are Liberian – and Aureus is also looking at biofuel options using residue from local rubber plantations that will enable it to provide its own electricity. At Putu Iron Ore Mining, of 375 employees, only seven are expatriates and the company boasts the largest number of local geologists of any firm in the country.

Both companies are committed to Liberia for the long term; they were there and remained there when the company was being torn apart by conflict, and each company is now determined to play a significant role in what they see as a prosperous future for both the country and those with the foresight to work alongside the government to promote Liberia’s potential.

The above article 1st appeared in the Liberia supplement which was distributed in Saturday’s Daily Telegraph dated 23rd April 2011. The supplement was produced and published by Peregrine Investments Ltd. (www.peregrinemediagroup.co.uk).

More info here : http://www.advfn.com/cmn/fbb/thread.php3?id=24978039&from=726

25th Apr '11

Ocean Equities note on Affero

Affero Mining Inc - Resource Growth to Continue

African Aura achieved tremendous resource growth over the last 12 months and we expect all of African Aura’s iron projects now contained within Affero to continue to grow in the near term. At Putu an aggressive 66,000m drilling campaign is still underway which will continue to expand the now >2bt magnetite resource at the mine. Putu has many advantages over its peers in West Africa, not least its relative proximity to the coast (~120km compared to an average in excess of 400km). Liberia itself is in a period of rapid growth and infrastructure rehabilitation. Leading the way is ArcelorMittal which will bring its rehabilitated Yekepa mine back into production early in 2H this year.

Similarly at Nkout and Ngoa in Cameroon, further exploration will likely yield results as strongas in the recent announcements. Initial drilling at Nkout has not only shown that there is significant resource potential at the mine but also that the potential product from the mine would be of superior quality. Early Davis Tube recovery data indicate that Nkout is capable of producing a product grading above 70% Fe with low levels deleterious elements.

Our view is that Ngoa will likely prove to be of similar grade but that it offers some great advantages over Nkout. The deposit is a hill covered in high grade ore. The strip ratio will therefore be significantly lower than its sister project at Nkout. We eagerly await drilling results from Ngoa. Both projects are located close to Sundance Resources’ (ASX:SDL) proposed pipeline. Whereas Putu is closer to the coast, it ultimately will have to build a 120km railway.

At Nkout and Ngoa, a smaller rail spur would be required, potentially only 40km in length.

http://www.minesite.com/fileadmin/content/pdfs/April_2011/African%20Aura%2013.4.pdf

12th May '11

Affero is moving up against the general market downfall, it has been rising the last couple of days after falling irrationaly. Looks cheap on the potential, director recently bought at 187p...but trading in the market at 131p.

I think they could get taken over at somepoint by a BHP. RIO or Arcellor who operate in the same area imho.

13th May '11

Affero up another 9% today, I think this might have something to do with it - this will help boost the value of the Cameroon assets :

Sundance Seeking China Partner for $4.7 Billion African Iron Ore Project
By Elisabeth Behrmann - May 13, 2011 9:27 AM ET

Sundance Resources Ltd., seeking to develop a $4.7 billion iron ore mine, port and rail road in West Africa, may sell as much as half of the project to a Chinese partner to help fund construction.

http://www.bloomberg.com/news/2011-05-12/sundance-seeking-china-partner-for-4-7-billion-african-iron-ore-project.html

Worth listening to the Sundance Interview

The chinese are investing $12bn in Cameroon to build its proposed Lom Pangar dam to increase electricity output from 1,000 MW to 3,000 MW by 2020.

Chinese firm wins Cameroon's Lom Pangar contract

http://af.reuters.com/article/commoditiesNews/idAFLDE7491AZ20110510

18th Jul '11

This has been a crazy investment the last few months with the ups and downs in the share price, mostly down despite significant resource upgrades from Putu and Nkout. Still a profitable Investment as I averaged down many times.

Interesting to note Hanlong Group's bid for Sundance Resources, they are Affero's partner in Putu.

IT comes as no surprise that Sichuan Hanlong Group has made a takeover proposal for Sundance Resources, as the Chinese company probably regarded itself as already having a foot on that company's proposed $US4.6 billion ($4.3bn) iron ore project in Central Africa.

http://www.theaustralian.com.au/business/opinion/hanlong-groups-bid-for-sundance-resources-comes-as-no-surprise/story-e6frg9kx-1226097120059

Interesting to note that the board advised shareholders to take no action as it undervalues Sundance....Will Hanlong go for Affero? I hope not as quite pleased with the work Luis and his team have done for shareholders and think there is quite a lot more to come.

ohisay

3rd Aug '11

Latest presentation.

http://www.afferro-mining.com/i/pdf/presentations/AFFERRO%20Presentation%20August%202011.pdf

12th Dec '11

GMP broker comment today..

Afferro Mining – AFF LN - £60m

Company announces divestment of its 38.5% stake in the Putu iron ore project in Liberia to Severstal. AFF will receive $65m in cash by the latest of completion or 28th February 2012. On top of this, AFF has the right to receive a further $50m at any time after the earlier of June 30th 2013 or 2 months after the delivery of the DFS. If this right is not pursued, AFF has the right to receive a minimum of $70m (full details below) in the event that Severstal sells >10% of the project on. If neither of these options is exercised, Severstal has the right to make a $70m payment to Afferro at any time after 30th June 2014.

The receipt of $65m or 39p/share in cash is clearly a massive result for the company. Arguably Severstal is getting the balance of the project on the cheap, but the market has not given full value for the project for some time, so the realisation of this sort of value is to management’s credit. With a minimum of $115m (70p/share) to come in, my view is that the market won’t give any value for the balance of $50m until it appears. The company is now a one asset business with all its focus on the Nkout project in Cameroon. With ~2bn t @ 32% delivered in under 18 months, this project has been progressing very well. The recent inclusion of 18.5Mt at 60.3% (genuine DSO that would be very welcome for some Guineas-based projects) bodes very well for potential early cashflows from a starter pit.

Based on the $65m/39p to come in, AFF has a potential EV of….$8m ($20m existing cash, $65m to come, mkt cap of $93m) or 52p/share in cash. This puts its residual resources at Nkout on ~$0.01/t. With an average W African peer trading on $0.86/t, the valuation gap is obvious.

More importantly, with a significant bolster to its cash balances, AFF is now well funded to further develop its Nkout project and the urgency of a resolution to the Sundance/rail corridor question is lessened. Clearly that would be what drives the shares further, but today’s rise (+17p or 40%) seems well short of where the shares should be trading. With a growing resource base and likely rise in the DSO contingent, Afferro is categorically my top iron ore exploration pick.

Affero - An Iron Investment for 2011

Unlock the rest of this article with a 14 day trial

About the Author

Isaac

9 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...