Anglesey Mining is a top value play, says Ambrian Capital

Anglesey Mining (LON:AYM) is a ‘top pick’ for any investor looking for a value trade, according to Ambrian Capital analyst Nick Mellor.

Yesterday the group’s 33 per cent owned associate Labrador Iron Mines (TSE:LIM) unveiled a significant new deal, with the Iron Ore Company of Canada (IOC), which is majority owned and operated by Rio Tinto (LON:RIO). The deal will facilitate the shipment and sale of LIM’s iron ore into Asian markets.

LIM began production earlier this year from its operations in the Schefferville area of western Labrador and north-eastern Quebec. The phased development project will ultimately see LIM bring 20 direct shipping iron ore deposits online in the area.

Ambrian analyst Nick Mellor said yesterday’s deal with the IOC is ‘huge news’ for LIM. According to Hughes the deal represents a solution to the final logistical hurdle in the way of commercialising production at the recently commissioned James Mine. 

“To put this agreement into context, we believe that worries over LIM’s access to the port, and therefore to the seaborne market for iron ore, catalysed the stock’s (54 per cent) price decline since March,” Mellor said in a note to clients. 

“We feel that this announcement will allay these worries, and the market will again begin to focus on all the positives that LIM has over its peers.” 

Despite the operational breakthrough the share price hasn’t taken off quite like Mellor had hoped. In Canada last night LIM shares actually traded around 1 per cent lower, dropping from C$10.28 to C$9.67, on the news. Then in London this morning Anglesey shares slipped 3.5p, about 6 per cent, to trade at 53p each.

Reflecting on this morning's pullback by Anglesey shares, Mellor told Proactive: "It is worth pointing out that the whole market for miners is down - the FTSE 350 Mining index is off over 2 per cent on very low volumes - Ferrexpo and African Minerals are down more than 3 per cent each, so other quality iron ore plays getting sold down as well."

The analyst also reckons profit taking may have played some part too - Anglesey shares gained over 40 per cent last week. But when asked about the group's current valuation, Mellor said: "It’s a steal in my view, so I would be hoovering the stock up right now."  

Indeed in yesterday's note Mellor told clients that Anglesey shares are due a rebound.

“LIM’s market value (and, by extension, Anglesey’s) has halved in value since its peak in March this year. We are confident this latest announcement will change that downward trend,” the analyst said.

“Given that Anglesey is down 50 per cent since its March peak vs. the rest of AIM metals and miners (down a median of 20 per cent from their peaks as a result of the more recent correction), the substantial underperformance of Anglesey against this group, coupled with this ‘game-changing’ news, makes the stock a top pick for anyone looking for a value trade.” 

Yesterday Anglesey confirmed that LIM has now agreed to sell all of its 2011 production to Rio’s IOC. Through the confidential sales contract the iron ore will be delivered to Asian markets and the IOC will re-sell it on the spot market, via its marketing organization. 

Under the terms of the deal LIM will receive a sale price based on the actual realised prices - less costs for handling, loading, shipping and sales.

LIM has previously agreed a transport contract with Quebec North Shore and Labrador (QNS&L) railway, also owned by IOC, to carry the ore to the Port of Sept-Iles – where it is unloaded and stockpiled. Now following yesterday’s deal with the IOC the ore will be shipped from the port via Cape Size Ocean ships, which have lower freight rates than smaller Panamax ships.

“LIM believes that the benefits associated with this arrangement, together with the benefits of the utilization of larger ships, will ensure that the maximum possible tonnage of LIM's iron ore will be efficiently shipped and sold during the remainder of 2011,” Anglesey said in a stock market statement.