Image Resources NL 11 Nov 09

All dressed up – take me.

In this review we summarise the September Quarterly Report for 2009. The company is advancing exploration in the Eucla Basin and the company’s share price has kept pace with the ASX Materials Index.


Fat Prophets initially recommended Image Resources (IMA) at 34 cents in November 2005 (FAT Mining 1). Our last review of this stock was in June (FAT Mining 177).

Since our last review in June, Image Resources has posted further gains, reaching a high of $0.935. As evident on the daily chart, prices have recovered strongly over the past 12 months, following close to 2 years of decline during 2007 and 2008.







Although further gains are achievable, with prices well below the all time high of $2.96, there is a significant amount of chart resistance overhead. As a result, we cannot rule out further consolidation over the coming months, before initial rally attempts emerge into a sustainable upward trend.





It is interesting that the company achieves the results that it did because it spends very little on exploration. The September quarterly report shows that a paltry $93,000 was spent on exploration. By contrast the company spent $359,000 on administration.

The company also spent $489,000 on equity investments. Investors might well wonder if the company thinks it will add more value to shareholders from investments rather than from exploration and development.

At 31 September, 2009, the company had cash of $5.6m which is adequate at the current rates of expenditure.

The company recently announced changes in its two substantial shareholdings in Meteoric Resources NL (ASX: MEI) and Magnetic Resources (ASX: MAU). Image now owns 8.63% of MEI which is capitalised at $12.2m, and 15.64% of MAU capitalised at $10.7m. MEI is exploring a large gold anomaly in the West Arunta region of WA, and has a number of IOCG targets. MAU is exploring for uranium and iron ore. These are associated companies with common directors.


Key Points from the Quarterly Report:

North Perth Basin:

1) An upgrade of the Atlas Resource at Cooljarloo increased zircon by 120%.

2) 102.000t of contained zircon is inferred.

3) Heavy mineral tonnes have been increased 40% to 910,000t.

4) The HM (heavy mineral) grade was increased by 11% to 6.2% HM.

The Atlas resource is 7km long and about 400m wide. Not enough work has been done to classify the content of rutile, ilmenite and zircon at an indicated level of confidence.

Eucla Basin:

1) Strike length at Cyclone Extended increased by 2km to 4.5km.

2) Widths of the western zones extend to 800m wide.

3) Grades up to 15% HM have been encountered.

4) Zircon rich zones, up to 45% of HM, have been identified.

5) Exploration results lend support to calculate an indicated resource.

6) A scoping study might be justifiable.

7) Cyclone together with Cyclone Extended is a potentially significant resource.

8) Diatreme Resources owns the adjoining Cyclone deposit.

9) The two deposits are likened to Iluka’s Jacinth-Ambrosia deposits.

10) Cyclone extended is a potentially an economic discovery.

11) The mineralised zones at Monsoon are 20km east of Cyclone.

12) Exploration will test the gap between Cyclone Extended and Monsoon.

The market for mineral sands is recovering slowly. Here are some key points that Iluka Resources had to say about mineral sands in its October 2009, Mineral Sands Market Commentary.

1) The global contract in 2009 was dramatic.

2) Potential for further volatility remains high.

3) Sales of titanium dioxide are returning to more normal run rates.

4) Idled high quality pigment capacity is slowly being restored.

5) China’s demand for zircon is exhibiting a strong recovery.

6) Zircon demand seems to be improving in Europe and North America.

7) Supply of high grade titanium dioxide is expected to stay tight.

8) Iluka will manage supply of zircon because demand is currently weak.

The supply of zircon is constrained by the dominance of TiO2 and thus the ratio of zircon to TiO2 in material being treated. The global average is about 0.2 tonne of zircon to 1.0 tonne of TiO2. Some mineral sands projects being developed have a zero or very low ratio, whilst Iluka’s Eucla Basin projects have a high ratio of 2.6 tonnes of zircon to 1.00 tonne of TiO2. In a global sense the ratio is expected to remain little changed and Iluka is well placed to meet changes in demand.

The traditional mineral sands markets are difficult for new entries. Marketing and product specifications are vital keys to success. Iluka, a dominant player in the minerals sands sector has been very successful on the exploration front and has little or no need to buy reserves.

We do not believe at this point in time that Iluka is considering acquiring Image Resources, although we are sure that Image hopes that Iluka will bid for the company.

Image is an index performer and has therefore performed well with the market. Fat Prophets first recommended buying the stock at 34 cents in November 2005. We would not own the stock in the hope of a takeover bid from Iluka, and at Image’s current price we see other opportunities that potentially offer higher returns. Members might like to consider switching into Aurora Minerals Limited and Western Desert Resources which were covered in FAT-MIN-194.

At this point in time we are going to lock in our profits in Image Resources.

Accordingly we are removing Image Resources from the Fat Prophets Australian Mining and Resource Portfolio.

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