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Analyst Actions: Labrador Iron Mines Estimates Lowered at Credit Suisse

By: MT Newswires
Posted: 5/15/2013 10:41:00 AM
Referenced Stocks: IOC

Credit Suisse says: "LIM.TO announced two encouraging developments yesterday; 1) a new two year Iron Ore Sales agreement with Iron Ore Company of Canada ( IOC ) and 2) a $35mn offtake financing with RB Metalloyd."

IOC Sales agreement: "Details of the agreement have not been provided and are likely to remain confidential, however the use of a monthly average IODEX price (rather than previous spot) should result in a less volatile top line for LIM.TO. Our previous analysis has suggested that LIM.TO may be paying around $21/t for unloading, material handling and marketing fees to IOC. This should decrease when alternative port solutions become available to LIM.TO. The new multi-user berth at Sept Iles was meant to be completed in 2014, but if LIM.TO is signing agreements like this with IOC until the end of 2014 it might imply that LIM.TO doesn't see the new berth being available until at least 2015. If this is indeed the case, it has implications for other Labrador Trough producers such as NML.TO/TSMC. ADV.TO will not be in production until after 2015."

US$35mn off-take financing: "RB Metalloyd, an international trading house, will purchase LIM.TO's iron ore from IOC on a FOB basis. A $35mn prepayment will be repaid between July 2013 and December 2014 over a minimum 3.5mt (implying $10/t repayment costs). Although not specifically stated, we'd assume that RBM now has security over LIM's assets - something equity holders should take note of. The impact of a ~$10/t financing margin on LIM.TO's operating margin is summarised in full report."

Our target price of C$1.00/sh is based on a book value approach.

Estimates: "We are lowering our FY13 and FY14 EPS estimates to (C$0.62) and (C$1.11) from (C$0.38) and (C$0.72), respectively."