Latin Resources (ASX: LRS) is the subject of a research report that has placed a price target of $0.35 per share following the company's funding agreement with Hong Kong listed Junefield Group.
The proposed A$8.4 million Chinese investment in Latin Resources at A$0.28/share (51% premium to closing price) and exploration farm-in, is a major statement of confidence in the company's 2013 magnetite/gold/minerals sands production aspirations and exploration upside in Peru.
An extract of the report is below.
Latin Resources listed on the ASX September 2010 and is focused on exploration and development of its portfolio of iron, gold and iron mineral sands projects in Peru, where it has been active for over 3 years and spent >A$8 million to date. Assets are close to infrastructure, including road and port.
LRS has recently announced that a subsidiary of the significant Chinese diversified group, Junefield Group, will take up a 16.8% stake in LRS in two tranches (2nd tranche subject to LRS shareholder approval) through taking a share placement at A$0.28/share (plus 1:3 free A$0.30 option).
The Junefield Group is also farming in to the Mariela and Dylan tenements by paying A$1.4m up front and expenditure of up to A$35m (or completion of BFS) to earn 70%. Significantly, Junefield is already on the ground in Peru, having interests including exploration tenements and an active exploration team. This is a credibility boost for LRS’s Peruvian production and exploration targets.
Guadalupito Project (100%, Multi Commodity - Fe, Au, mineral sands):
160 square kilometres project area located 200km north of Lima. Purchase price of US$20m payable in instalments over 10 years (plus 1% NSR) with payments loaded towards back end.
Based on sediments identified over 60 square kilometres to a depth of 20m (indicated from initial drilling), LRS has generated an exploration target of 2-2.6bt mineralised sand, including potential 1moz of gold (based on 0.55g/t grades in fine -52µ fraction), which could be a huge boost to project economics. Average 10.4% total heavy mineral content, 17.4% in the sand fraction.
Mineralogical test results show liberated clean grains which result in low cost processing and concentrates at 63.5-64% Fe and encouragingly low 5% TiO2 from gravity and magnetic separation.
Guadalupito is mineralised from surface and it is located 25km from an iron smelter and port via sealed highway.
Maiden JORC Resource:
After recently completing a 68 hole sonic drill campaign (most holes >20m depth) and sampling 883x1m deep pits over an initial 3 square kilometres area, LRS has engaged Snowden to establish an initial ‘proof of concept ‘ JORC resource.
This maiden JORC resource is imminent. Scoping Study Underway: The Ausenco Scoping Study fast-track (Stage1) production is underway, expected to be complete in 1Q12. Stage 1 is based on simple low cost dry mining, magnetic and gravity separation treating 10mtpa to produce a 62% Fe concentrate and separate gold and zircon concentrate.
Stage 2 is envisaged to ramp up to 35mtpa with a dredging operation and wet concentrator to produce discrete zircon and TiO2 concentrates as well as magnetite and gold concs. We expect Stage 1 will move to PFS in early 2012. LRS is targeting first production from Stage 1 in 2013.
Ilo Projects - Ilo Norte (100%, Fe, Cu, Au, Zn):
Eight recent exploratory drill holes targeting magnetic anomalies over 1.25km strike and 400m wide, potential thickness 250m, intersected Fe and Cu with the best results 120m from 24m @ 0.13% Cu, 20.38% Fe.
The mineralisation is open to the north, south and east. Anomalous Au and Cu were intersected indicating the possibility of copper-gold target.
Mariela is high amplitude, covered magnetic anomaly target over a 3km by 1km area, 30-200m thick under 30- 100m of cover. A gravity survey to generate drill targets is underway, expect drilling 1Q12.
Option on adjacent two Dylan concessions (which contains extension to anomaly) recently taken up – total staged payments US$6m for each, with minimal (US$1.4m) payment required in next 2.5 years.
We think that the proposed Chinese investment in LRS at a significant premium to recent share price, and the big expenditure commitment to farm in to Mariela and Dylan, is a major statement of confidence in the medium term iron sands production potential at Guadalupito and the exploration potential for further major Fe/Cu deposits at Mariela and Dylan.
The Chinese Group has already a significant exploration presence in Peru, so their value judgement regarding LRS should be reasonably sound.
With a strong near term newsflow (including Guadalupito JORC resource and Scoping Study) and increasing production focus and cash to drive it, we think the market will awaken to the value the Chinese see, hence our A$0.35 share price target in the next 6 months.