BUY ORMONDE MINING, POSITIVE DRILL RESULTS

Ormonde Mining plc's objective is to build a mid-sized mining company by developing gold projects in Spain. Ormonde's portfolio includes substantial gold and copper resources at the advanced La Zarza Project, and other properties where the Company anticipates that drilling will identify significant new resources

Price @ close 1st March 10.25p

Index AIM

Sector Mining

Ticker ORM.L

Target Price 19p

Market cap 25.24m

Fairfax act as Nomad & Broker Yes

Ormonde Mining is progressing an infill drill programme at Barruecopardo aimed at converting inferred resources into the indicated category, so that they can be added to the mine plan which could in turn support an expanded mining scenario versus the 500ktpa scenario which the company plans to start at. Management has now completed 15 holes of which the results of 3 have been received and returned high grade results in line with expectations.

Drilling: The results returned from the 3 holes include 6m at 0.5% WO3 (tungsten trioxide), 3m at 0.8% WO3 and 2m at 2.0% WO3. Drilling continues with updates likely to be released every 4-5 weeks as analysis results are received.

The drilling has been towards the southern end of the deposit where the resource sits in the inferred category and encountered grades and widths in line with expectations adding confidence in the structure of the deposit.

Longer term there are numerous tungsten targets in the region, and Barruecopardo remains open along strike and at depth, so further expansion potential could well be delineated from exploration.

Permitting: Management continues progressing the permitting process and has prepared further documentation. In January the company submitted initial permitting documentation. Permitting is one of the longer lead tasks to progress the Barruecopardo project and is being carried out in parallel to drilling and feasibility study work. In order to minimise risks in following the required route to permitting, Ormonde has contracted the services of experienced Spanish consultants familiar with the legislative environment.

Tungsten Market: Tungsten prices go from strength to strength and APT (tungsten intermediate) prices are reported at US$368-372/mtu, up at least 50% in the last 6 months. This is particularly reflective of market conditions as APT is not a widely traded product and consequently very difficult to speculate on as prices are largely driven by consumers and producers. We note a recent Metal Bulletin report that indicates that Chinese suppliers of APT have been reneging on supply contracts as demand is strong yet supplies are very limited.

We see assets such as Ormonde's Barruecopardo becoming of growing interest for investors as consumers are forced increasingly to seek other sources of Tungsten outside of China. As previously stated we view this potentially highly profitable asset sitting in a safe Western Jurisdiction e.g. Spain, as strategic.

Valuation: We maintain our target price of 19p determined from an NPV of Barruecopardo using a 12% discount rate. We have assumed that Barruecopardo is debt funded later on this year (capex of Euro33.8m) with equity funding ongoing development work and overheads until cashflows are self sustaining. We forecast production starting at the end of 2012 at an annualised rate mining 500ktpa of ore ramping up to 800ktpa by 2016. Production will average around 155k mtu/year of WO3 (tungsten units within the concentrate) at full operating capacity ramping up to produce around 230k mtu/year at the 800ktpa of ore treated rate. Underground mining at 600ktpa is then to phase in as the mine becomes too deep for open pit operations. We have also used conservative tungsten prices of US$261/mtu long term (price of tungsten intermediate APT), current market prices are in excess of US$360/mtu as the fundamentals for the metal are particularly robust, consequently there is significant upside to our valuation target. Even at our lower tungsten price assumption, operating margins are expected to average above 60%.

Conclusion - These latest results demonstrate that management is ramping up activities at Barruecopardo as they push to develop the asset. The results returned from these holes are very encouraging as they are in line with expectations, and we note that the grades are higher than the resource. Going forwards regular newsflow from the drilling programme will highlight further progress and the market conditions appear to be getting rapidly more attractive for miners exposed to Tungsten as supply shortages become a growing issue.

- 2nd March 2011