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Brazilian Metals Group delivers on maiden 459 million tonne iron JORC Resource in Brazil

With half of the maiden 459Mt iron JORC Resource in the Measured category, plus a second resource from Josilene-Scorpion forecast by mid-2012 - the market capitalisation of sub A$8m with A$2.4m in cash appears light.  Especially, given the advanced nature of the project and with M&A transactions in Brazil.

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Brazilian Metals Group (ASX: BMG) is progressing the company goal of developing a substantial mining enterprise in northern Minas Gerais, Brazil, and has now delivered a milestone in a maiden iron JORC Resource.

The significance of the 459 million tonne resource is the confidence categories, with 50% Measured and 36% Indicated.

Providing a further boost to the resource is the expected low strip ratio for the project as mineralisation outcrops at surface and has a gentle dip to the east.

The breakdown of the resource estimates which is based on 41 diamond holes for 6800 metres and 22 reverse circulation holes for 2500 metres is:

- 230.0 million tonnes at 19.0% iron in the Measured category;
- 166.5 million tonnes at 16.7% iron in the Indicated category; and
- 62.0 million tonnes at 17.5% iron in the Inferred category.

Metallurgical test work is now underway on the diamond core and the beneficiation characteristics, which have been demonstrated at Honbridge Holding Ltd’s (HKG: 8137) SAM Iron Ore Project (Block 8 deposit - which is contiguous to the north of the Gema Verde Iron Ore Project).

Bruce McCracken, chief executive officer, commented on the good news, and said, “The Gema Verde resource marks the achievement of a key milestone for the company, and provides the foundation to progress our strategy of developing an iron ore export enterprise in the medium term.

"When combined with our resource target of 2 to 3 billion tonnes at our Rio Pardo (Josilene-Scorpion prospect) during 2012, we believe we have the basis for a long term export operation of scale."

The next priority for Brazilian Metals is to continue progressing infrastructure options for the projects, particularly given that the State Government is already moving forward plans to provide an open access rail spur links to the new Federal east west railway.

The importance of the railway is that it will expedite the development of the emerging iron ore projects in the Rio Pardo area.


Pre-Feasibility work underway

Highlighting how Brazilian Metals is progressing the operations at speed, Pre-Feasibility work at Gema Verde and Rio Pardo (which is the Josilene–Scorpion prospect) is already underway, which is forecast to be completed on both projects in 2012.

In-fill drilling for resource definition at Rio Pardo is anticipated to deliver a resource estimate by mid-2012.

The project has an exploration target of 2 to 3 billion tonnes at 16.2% to 18.5% iron, which has been based on surface mapping and current drilling over 13 kilometres of strike length, with 28 reverse circulation holes having already been completed.


Analysis

Given the resource at Gema Verde is contiguous with the Honbridge's Block 8 project with a 2.65 billion tonne resource, Brazilian Metals has vast exploration potential to realise a multi-billion tonne resource at 17% to 30% iron, with regional infrastructure under construction.

The ore at the project looks to be easily upgraded to 25% from 15% iron to pellet feed at 65% to 68% iron, within the lowest quartile of operating costs, the processing operating cost anticipated to be around $10 per tonne of product.

Added spice to valuation for the company is the significant amount of regional discoveries in northern Minas Gerais state and iron ore projects are commanding very high valuations in M&A transactions including the Vale (NYSE: VALE) do Rio Pardo project sold to Honbridge in 2010 for $430 million.

The current market value for adjoining ground demonstrates the significant value proposition for BMG and a path to re-rating given the advanced nature of their project and multi-billion tonne potential and low potential operating costs.

Brazilian Metals is currently capitalised at just A$4 million, which includes cash of $2.4 million.  Brazilian Metals can be directly compared to Iron Road (ASX: IRD), which is an Australian based iron ore developer with a more advanced project with roughly similar potential, that is currently capitalised at $90 million.

Brazilian Metals has a major advantage in that its cash operating costs for production of iron ore will be very significantly lower, and output may eventually be much higher than Iron Road.

 

Quick facts: BMG Resources Ltd

Price: 0.013 AUD

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Market: ASX
Market Cap: $8.73 m
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