Fostock: Haranga Resources Limited (HAR.ASX, $0.38/sh, Mkt Cap $83m)
· We recently marketed with management from HAR to institutional clients, following the Company's recent maiden resource at the flagship Selenge Iron Ore Project in Mongolia and $6m strategic placement to Lippo Group.
· The story was generally very well received, with investors recognising the key points of differentiation for Mongolian iron ore. Proximity to China (which reduces freight and increases margins), proximity to infrastructure (~30kms from nearby Eruu Gol rail spur) and mineralisation type (beneficiated via a dry and/or wet mag sep plant) delivers considerable competitive advantages to Mongolian iron ore aspirants such as HAR. Moreover, Mongolia's close proximity to the northern provinces of China offers further opportunity, given these provinces have a growing need for iron ore supply to feed steel mills and fill the gap as a result of declining quantities and grade from local magnetite operations.
· Following the maiden 2011 drilling program of ~13,000m, HAR released an initial JORC of 32.8Mt at 24.4% Fe at the Bayantsogt prospect and exploration target of 120Mt – 250Mt at the larger Dund Bulag prospect. The drilling program for 2012 has been set at 32,000m and in our view will deliver significant resource increases.
· Regular news flow is expected over coming months including met test work, allocation on the Trans Mongolian Railway, preliminary Scoping Study, Mining License and ongoing assay results which will lead to resource growth early 2013.
· We also highlight the corporate appeal of HAR given the strategic position held within the premier iron ore field in Mongolia. Following a recent placement to Lippo Group, the Company's current cash balance has increased to ~$18m. Lippo Group is a major Asian conglomerate with significant investments (estimated at >$50b AUM) held throughout Asia and particularly in Indonesia, China, Hong Kong and Singapore. The group's typical investment holding is ~30% - 40% and our understanding is that they are seeking to significantly increase their exposure to Mongolia. Whilst we don't consider Lippo Group to be the natural owner/operator of 100% of HAR/Selenge, we consider it likely that they will continue to build upon their existing position towards their typical holding level.
· The story was generally very well received, with investors recognising the key points of differentiation for Mongolian iron ore. Proximity to China (which reduces freight and increases margins), proximity to infrastructure (~30kms from nearby Eruu Gol rail spur) and mineralisation type (beneficiated via a dry and/or wet mag sep plant) delivers considerable competitive advantages to Mongolian iron ore aspirants such as HAR. Moreover, Mongolia's close proximity to the northern provinces of China offers further opportunity, given these provinces have a growing need for iron ore supply to feed steel mills and fill the gap as a result of declining quantities and grade from local magnetite operations.
· Following the maiden 2011 drilling program of ~13,000m, HAR released an initial JORC of 32.8Mt at 24.4% Fe at the Bayantsogt prospect and exploration target of 120Mt – 250Mt at the larger Dund Bulag prospect. The drilling program for 2012 has been set at 32,000m and in our view will deliver significant resource increases.
· Regular news flow is expected over coming months including met test work, allocation on the Trans Mongolian Railway, preliminary Scoping Study, Mining License and ongoing assay results which will lead to resource growth early 2013.
· We also highlight the corporate appeal of HAR given the strategic position held within the premier iron ore field in Mongolia. Following a recent placement to Lippo Group, the Company's current cash balance has increased to ~$18m. Lippo Group is a major Asian conglomerate with significant investments (estimated at >$50b AUM) held throughout Asia and particularly in Indonesia, China, Hong Kong and Singapore. The group's typical investment holding is ~30% - 40% and our understanding is that they are seeking to significantly increase their exposure to Mongolia. Whilst we don't consider Lippo Group to be the natural owner/operator of 100% of HAR/Selenge, we consider it likely that they will continue to build upon their existing position towards their typical holding level.
This could then potentially facilitate a takeover by a more likely natural owner/operator of the Project.
· We retain our BUY recommendation on HAR and price target of $0.90/sh.
· We retain our BUY recommendation on HAR and price target of $0.90/sh.
A high yield doesn’t tell the whole story. And when a stock drops like that and the company is having problems, there is a good chance they could cut their dividend or maybe even eliminate the dividend in the future.
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