Shree Minerals (ASX:SHH) has received Tasmanian State Government approvals for its Nelson Bay Iron River (NYSE:NBR) Project. The wait on approvals is worthwhile as mining and mining and production nears in 2013/14. NBR does not require CAPEX infrastructure.
Projected earnings from Stage 1 NBR Project for Shree Minerals are compelling - with potential to earn between $16 million to $18 million over two and a half years.
Shree Minerals has a relatively simple stage one iron ore project capable of mining 400,000 tonnes per annum of Direct Shipping Ore (DSO) hematite and Beneficiated Feed Ore (NYSE:BFO) based on CAPEX of $7 million.
Critically, for an iron ore developer and for Shree Minerals, CAPEX is low (with no infrastructure CAPEX) as the Project is close to road and port facilities. The DSO can be crushed and screened while BFO will require additional dry magnetic separation.
Stage 1 DSO+BFO resource is 1.43 million tonnes at 52.3% (Fe) iron which contains 703,000 tonnes of DSO at 58.1% Fe and 734,466 tonnes of beneficiable goethite-hematite. The DSO resource is outcropping - no pre-stripping is required.
The hematite ore is similar to ore found in Western Australia's Pilbara region; low alumina and a premium product easy-to-extract, and should enable Shree Minerals to gain near term cash flows with little financial or execution risk.
The ability to rapidly and cheaply advance the DSO+BFO resource into production at Nelson Bay will change the valuation metrics of the company.
Worth as much as $110 million even at current market rates for iron ore, mining of DSO+BFO material will generate strong near term cash flows in 2013/14 and transform Shree Minerals from explorer to profitable producer. Not factored in, there are also additional DSO resources that could be defined with in-fill drilling.
At current Lump and Fines prices, the DSO+BFO output from NBR is expected to generate $17.7 million in annual EBITDA for Shree Minerals. This will feed Stage 2 project at NBR.
This is against a current Market Cap. for Shree Minerals of just $12 million. The stock is tightly held. This is the key to potentially explosive share price and valuation upside. Springing from a low CAPEX and OPEX allows the company to move into production within six months of final approvals.
There is a short window for investors to enter at current valuations before the re-rating from explorer to producer is underway.
With current market capitalisation of $12 million, this under-valuation is unlikely to be on offer for long. Shree Mineralsrepresents excellent buying at this modest Market Cap. relative to forecast cash flows. Speculative Buy.
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