Afferro Mining: Quality Assests, Potential Access To Infrastructure

Afferro (AFF.V) ticks all the major boxes in terms of the quality of its asset base, projects’ diversity and potential access to infrastructure. While Nkout is a large magnetite deposit with a potential early stage DSO operation, Ntem is a smaller scale, and hence more affordable, project, which is only 80km from the coast. This, coupled with the positive met test results and a robust maiden resource estimate, suggests that Ntem could be Afferro’s first project into production. Trading at an EV/resource of US$0.05/t, the AFF stock should be well supported by positive operational news flow and expectations of the successful completion of the IMIC takeover.

Quality assets with potential access to infrastructure
Afferro scores well in terms of both the quality of its asset base and potential access to infrastructure. The latter is difficult to overestimate, given the amount of constrained projects struggling to raise funds and make it into production. Further, an MoU with POSCO as well as the latest offer from IMIC, an infrastructure developer in Africa with strong Chinese relationships, suggest that the company is well advanced with the potential strategic partner/investor deal, which could result in off-take and project funding and ease infrastructure constraints.

Infrastructure could unlock the region’s potential
IMIC’s offer values Afferro at US$193m in equity, or US$0.13/t on an EV/resource basis. Following a definitive agreement between Afferro and IMIC (24 June), the shareholder vote should take place by the end of August, with the completion of the deal expected in September. Since IMIC is involved in infrastructure development in Africa, iron ore in particular, it could therefore be instrumental in bringing together an infrastructure solution for Nkout and other iron ore projects in Cameroon/Congo. This could help to unlock the value of a region that host a number of promising iron ore deposits and could be the next large iron ore exporter.

Valuation: Attractive on every metric
With some US$84m in cash, Afferro trades at an EV/resource of just US$0.05/t of contained iron compared to the sector average multiple of US$0.21/t. Using the PEA assumptions and a long-term benchmark iron ore price of US$90/t, we arrived at a base case unrisked NPV10 estimate for Nkout of US$3.3bn on an attributable basis, or US$2.7/share diluted. This does not take into account US$0.8/share in available cash. Further, our preliminary model suggests that Ntem could be worth another US$242m in NPV10. Due to its estimated relatively low capex and robust project economics, Ntem could be a fast-track route to production for Afferro.

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