Analyst Actions: Credit Suisse "Neutral" on Northland Resources
Credit Suisse says: "The Swedish Parliament has announced that it will examine the potential construction of a rail extension between NAU's Kaunisvaara mine and Svappavaara - this is a 150km stretch of NAU's logistics chain which is currently only spanned by highway trucking.
Having the rail constructed and accessible is probably 6-7 years away at best, but the positive take away from this announcement is that it is yet another indicator of the Swedish Government's strong support for NAU's Kaunisvaara project. Having the government sponsor the construction of a railway line to support the mining industry would be unheard of in many other iron ore jurisdictions.
NAU.TO is currently commissioning its logistics chain (trucking/rail) for the Kaunisvaara project ahead of first concentrate sales in early MarQ13. We see logistics/infrastructure as a more critical to the business model than mining/processing, and continue to monitor progress closely.
We estimate that rail opex in Sweden would be in the order of $0.03/t/km and trucking perhaps $0.12/t/km, so the opex saving of switching trucks for trains could be $0.09/t/km. Over 150km, this implies $13.5/t at the cash cost level, $59.4mn EBITDA (at 4.4mtpa), or around 8cps in earnings. Although the potential is exciting, we must emphasize that the construction of a railway is currently little more than a concept, and there could be capex commitments, either directly or indirectly, payable by NAU.TO that could offset the opex benefit. The more important take-away for now is that the Swedish Government is very clearly a backer of NAU.TO's Kaunisvaara project."
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