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Cape Lambert Resources: Broker Places A$0.35/Share Target

Cape Lambert Resources (ASX:CFE) is the subject of a research report by Canaccord. This is a summary.

Investment Perspective

Another of Cape Lambert Resources' (ASX: CFE) investments is progressing to maturity with the granting of the Mining Convention for the Mayoko Iron ore project in the Republic of Congo (aka Congo Brazzaville).

CFE owns a US$1/t royalty on the project which could be producing 5Mtpa as early as 2H'15. CFE has made no secret of its intention to sell the royalty, which could inject US$30-US$50m.

CFE is also set to receive an A$13m payment from the takeover of Glory Resources (ASX:GLY| not rated), a $6.5m payment for the sale of the Leichhardt copper project, and it continues its recovery actions of the final A$80m payment relating to the sale of the Cape Lambert project in 2008.

Adding the above cash receipts to the possible sale of the Marampa Iron ore project and CFE has the potential to have multiples of its market capitalisation in cash. We maintain our SPECULATIVE BUY rating.

Key Points

- Exxaro Resources (JSE:EXX) has been granted its Mining Convention for the Mayoko Iron Ore Project in the Republic of Congo (Congo Brazzaville) which could be producing 5Mtpa early as 2H'15 and 10Mtpa by CY'19. CFE holds a $1/t royalty over the Mayoko project as a result of the spin-out of the Mayoko Project to African Iron which was subsequently taken over by Exxaro Resources (JSE:EXX| not covered) in 2011.

- CFE has been looking to sell the royalty which we value on a DCF10% basis at A$36m assuming a flat 5Mtpa production profile or A$55m assuming 10Mtpa from CY'19.

- CFE has a strong cash position of ~$30m (assuming the completion of the Glory Resources takeover which is nearing completion) and has several assets for sale which could significantly drive the share price in the short term.

- CFE is advanced in the process to recover the A$80m ($0.12/share) owing for the sale of the Cape Lambert Iron Ore project to Metallurgical Corporation of China (NYSE:MCC) in 2008. In late Nov'13 MCC deposited the disputed funds into an Australian domiciled account pending determination of the dispute.

-The sale process of the Marampa iron ore project in Sierra Leone is ongoing which we have a risked valuation of $165m based on our current iron ore price deck.

Maintain SPECULATIVE BUY and Target Price at A$0.35/share

We maintain a SPECULATIVE BUY rating and target price of A$0.35 based on a sum of parts valuation formulated from a risked DCF12% valuation of the Marampa project of A$166m and the sum of the estimated realisable value of assets and investments held by CFE (A$75m).

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