BULL POINTS:
■ Vast, expandable iron ore resources
■ Near-term, low-cost production
■ Fully funded to production
■ Proven management
BEAR POINTS:
■ Shares can be difficult to trade
■ Greenland project barely started
London Mining is developing a portfolio of iron ore projects in Sierra Leone, Saudi Arabia, Greenland and China that should turn it into a mid-tier supplier to the global steel industry. Each project has some economic or political importance to its country, which increases the likelihood they will receive the necessary government approvals to hurry them through to production.
The shares have been listed on the Oslo Stock Exchange since 2007 and the group introduced its shares to London's Alternative Investment Market (Aim) in November to help increase their liquidity, which is sticky but starting to improve.
London’s bosses have proven credentials of delivering growth. They acquired a Brazilian iron ore project for $65m (£40m) in May 2007, fast-tracked its development and sold the project to ArcelorMittal for $810m in August 2008. That deal enabled the group to return £219m to shareholders.
The group has a strong balance sheet - $230m net cash at 30 September 2009 - and should be fully funded through to the first production from its vanguard project, Marampa in Sierra Leone. Marampa has an operating history dating back to 1933 and consists of two separate projects: processing iron ore tailings (residual material left over from previous mining) and mining primary ore.
First production from Marampa's tailings is on track for the first half of 2011. Recent confirmation of the scale of the tailings, estimated to internationally-recognised standards, supports initial production of 1.5m tonnes per year, with capacity to double to 3m tonnes. Processing tailings rather than mining ore allows for lower cost operations at start-up.
Following recent drilling, the group will release details of Marampa's primary ore reserves by March; the hope is that it can produce 5-8m tonnes a year. London will also publish a study on exploiting the primary orebody by the end of the year. Management is in final discussions to secure a floating crane. This big piece of kit is likely to have a lead time of perhaps 14 months, which points to production starting in 2013.
| LONDON MINING (LOND) | ||||
|---|---|---|---|---|
| ORD PRICE: | 205p | MARKET VALUE: | £225m | |
| TOUCH: | 200-205p | 12-MONTH HIGH: | 259p | LOW: 192p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 191p | NET CASH: | $230m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | nil | -1.1 | -3.6 | nil |
| 2006 | nil | -1.1 | -2.2 | nil |
| ($m) | ($m) | (¢) | (p) | |
| 2007 | nil | -19.6 | -25.0 | nil |
| 2008 | nil | -83.0 | -81.0 | nil |
| % change | - | - | - | - |
Normal market size: 4,000 Matched bargain trading £1=$1.605 | ||||
In Saudi Arabia, London owns 50 per cent of the Wadi Sawawin joint venture (its partner is the Saudi-based National Mining Company), which targets annual production of 5-10m tonnes of high-grade iron ore pellets. A commissioned external report indicates a significant regional supply gap for such pellets over the next decade, and positive long-term prospects could support expansion up to 20m tonnes a year plus a potential merger with a third project: Isua in Greenland.
Isua is London's earliest-stage project, but indications are that it is a large deposit with significant expansion potential. A study last December confirmed resources of 574m tonnes at 37 per cent iron ore, and production will target 5-10m tonnes a year. London expects to complete a pre-feasibility study by March.
