Credit Suisse asks: "How cheap is cheap enough?; UPGRADING to
OUTPERFORM (from Neutral)."
It said: "Both equity and debt investors are keen to understand
the risks around NAU's current financing deals ($250mn equity +
$125mn debt), the potential outcomes, and how they should be
valuing this business. NAU is not a name for the faint hearted, but
we have upgraded our recommendation to OUTPERFORM.
"Although this report is essentially a Northland Resources case
study, it contains a number of valuation ideas that are likely to
be of interest to a broader iron ore investor base.
"Our recently revised C$0.40/sh TP was based on NAU successfully
completing the $250mn equity raising at C$0.33/share, but with the
equity currently trading at less than half of this level we felt it
was prudent to revisit the valuation story. A range of different
valuation techniques are presented in this report, with the
intention of offering some insight into how equity investors,
strategic buyers and corporate buyers might value this stock.
"Our analysis suggests that we would need long term view on iron
ore at $130-140/t in order to get excited about valuation; however,
we point out that a likely buyer of NAU may have little regard for
financial analysis. The Swedish government is a backer of this
project, and we believe that it does not want to see it fail.
Nearby state-owned LKAB has huge potential synergies with NAU,
could benefit even if it bought NAU just to shut it down, and
LKAB's last reported balance sheet showed $2.75bn in cash. Although
government intervention is probably a last resort, we think it
offers a valuation floor for this stock at or around current
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