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Centrex Metals: Magnetite Resource Upgrade At Bungalow Paves Way For Delivery Of Maiden Ore Reserve

Centrex Metals (ASX: CXM) has delivered an increased 338 million tonne Resource at its Bungalow Magnetite Project near Cowell on South Australia's Eyre Peninsula following a successful drilling campaign.

Importantly, this paves the way for the delivery of an Ore Reserve in coming weeks ahead of the completion of the Bungalow Pre-Feasibility Study in late 2012.

Adding further spice to the project, the estimated grades and mass recovery of the resources are high with an average head grade of 29.6% iron, 69.7% iron concentrate and 34.3% Davis Tube Recovery.

As a result of an intensive 55,000 metres of drilling over the past two years the geo-metallurgical domains and spatial continuity of the mineralisation have been defined to a high level of confidence.

Of the total 239 million tonne Resource at the Bungalow deposit, 185.8 million tonnes is in the higher confidence Measured and Indicated categories, while 53.3 million is in the Inferred category.

The Minbrie deposit hosts the remaining 99 million tonnes in the Inferred Category.

Previously Centrex has been mainly focused on delivering a maiden Ore Reserve at Bungalow, but with the delivery of an Inferred Resource at Minbrie the company is now planning further drilling to prove up the deposit.

The Minbrie deposit is located along strike of the Bungalow deposit, both on the same exploration licence and within the same banded iron formation.

The Bungalow and Minbrie deposits occur along a strike length of about 14 kilometres.

Bungalow exploration plan

Pit optimisation studies will now begin and will form the basis of the Pre-Feasibility Study (NYSE:PFS).

The recently completed geotechnical and groundwater modelling will support the mining study and establishment of an Ore Reserve in the coming weeks.

The final round of detailed metallurgical test work for the PFS is scheduled for completion in June followed by the process plant design.

The magnetite concentrate would be transported via a 100 kilometre pipeline to Port Spencer for dewatering and storage.

Route to market

Centrex has formed a joint venture partnership with Wugang Australian Resources Investment (WARI), a subsidiary of major China steelmaker Wuhan Iron and Steel Company, to design, build and operate the proposed Port Spencer.

Port Spencer has been assigned major development status from the South Australian Government and will export iron ore and grain from the Eyre Peninsula, providing effective access to international markets.

The port would be capable of loading cape size vessels of up to 200,000 tonnes and would have a shiploader rate of 5,000 tonnes per hour for ore. Long term, there would also be the provision for rail access.

Baotou Joint Venture

The Bungalow Magnetite Project is a joint venture between Centrex (70%) and Baotou Iron & Steel Group (30%), the largest steel enterprise in inner Mongolia.

Baotou has a large production base of iron and steel and the largest scientific research and production base of rare earth in China.

To date the steel giant, which plans to expand steel output in 2015, has committed A$24 million to earn its initial 30% interest in the Bungalow Project.

Baotou can increase its participating interest in the joint venture to 50% with a further A$16 million progress payment to undertake a Definitive Feasibility Study.

Cash-backed

Centrex Metals is trading below cash backing with a market cap. of just $72 million and a cash position of around $76.6 million at the end of the March quarter, which equates to cash back equal to $0.24 per share. This is against a share price of just $0.23.

When you consider the progress being made at all three of Centrex's joint ventures, and that they are all fully funded through to completion of Feasibility Studies, Centrex appears undervalued.

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