IMX Resources (ASX: IXR , TSX: IXR, IXR.WT) has forecast full year cash flow of $34 million from its Cairn Hill Joint Venture near Coober Pedy, South Australia.
This follows record March 2013 cash flow from Cairn Hill of $13.4 million due to continued strong performance of the mining operation, reduced cash operating costs and a rebound in iron ore prices.
Cash costs for the March 2013 quarter averaged A$79 per tonne FOB and are expected to average about $82 per tonne FOB for the year ended 30 June 2013.
The forecast for the full year is based on average consensus forecasts for the June quarter of US$129 per tonne for the Platts 62% Fe index, an LME copper price of US$7,778 per tonne and an AUD/USD exchange rate of 1.04.
IMX expects this to generate cash flow of $34 million for the year ended 30 June 2013 before distributions to joint venture partners.
This together with the forecast production of 1.75 million tonnes would break all previous production records for the Cairn Hill mining operation, despite a challenging economic environment for iron ore producers.
“These stronger than expected financial and production forecasts reflect the hard work that was put into reducing operating costs and maximising productivity in the first half of the financial year, along with the continued support IMX has received from its employees, contractors and logistics partners at the Cairn Hill operation,” managing director Neil Meadows.
IMX has a 51% operating interest in Cairn Hill, which is located 55 kilometres southeast of Coober Pedy. China’s Taifeng Yuangchuang International Development Co owns the remaining 49%.
Distributions to the Cairn Hill JV partners commenced during the quarter, with a total of $5.8 million distributed between the two companies.
Cairn Hill
Mining at Cairn Hill continues to be focused on developing Pit 1 at the current rate of activity while pre-stripping activities in Pit 2 are being kept to a minimum without impacting upon ore mining or shipping rates.
The mine plan is reviewed each month to maintain the optimum combination of ore accessed from Pit 1 and development of Pit 2.
Cairn Hill is expected to produce 1.8 million tonnes of DSO coarse-grained iron-copper product for two to three years with the Phase 2 development option offering the potential to extend mine life.
Exploration for deeper copper and gold mineralisation under the mine is also underway.
This targets zones located 250 metres below the mine floor where geological mapping and structural studies have identified optimal targets.
Geophysical magnetic modelling also supports thickening of the magnetic host rock in target zones under Pit 1 and Pit 2.
While Cairn Hill is mined primarily for iron, in the form of magnetite, the deposit is geologically classified as a magnetite IOCG and the copper and gold content of the magnetite accounts for a third of the production value.
Two diamond core drill holes are testing the two target zones below Pit 1 and below planned Pit 2.
These two targets have been identified as having optimal conditions for the structural thickening after recent consultant structural mapping of Pit 1 and are supported by detailed magnetic modelling.
A third hole will test a strong magnetic anomaly 1km west of the Cairn Hill mine along strike of the main copper-gold-magnetite lode. The anomaly is strong, despite being covered by over 250 metres of sediments and presents a large IOCG target and possible extension to Cairn Hill.
Analysis
The ability of IMX to further reduce cash costs at Cairn Hill is another sign of how strongly the mine is operating. This has provided a strong profit margin scenario.
This along with strong iron ore prices has allowed IMX to forecast strong cash flow for the year ended 30 June 2013 and will lend itself to supporting the rest of the company’s operations.
With a cash balance of $15.29 million at the end of March 2013 quarter against a market capitalisation of $29.73 million, this further highlights the upside available to the company.
The cash flow result for March and forecast for the year underpins the current valuation but also points to the stock being undervalued.
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