Australian company Baobab Resources is worth 500 million pounds to a steel making company that could get a “healthy return” on its acquisition, according to First Columbus, a British investment and financial analysis company.

According to the trade press, First Columbus issued a “buy” recommendation in its initial analysis of Baobab Resources, a company involved in a project to produce 2 million tons of pig iron in the central Mozambican province of Tete.

In its analysis the company notes that the pre-feasibility study had shown that the Australian company could become one of the world’s lowest cost producers of pig iron, if not the lowest.

“The combination of hydroelectric power, thermal coal at a low cost and cheap labour allow Baobab Resources to have an operating cost of US$224 per ton of pig iron,” the document said.

With expected production of 2 million tons per year, the project has a value of US$2.4 billion, which would allow it to generate EBITDA (earnings before interest, tax, depreciation and amortisation) of US$565 million.

“Baobab Resources could save a steel making company around US$537 million per year which means it could be bought for no more than 502 million pounds and still offer a healthy return,” said First Columbus.

Meanwhile, the Australian mining company announced it had hired the Standard Chartered Bank to provide it with strategic advisory services, specifically to identify and carry out alternative financing opportunities to develop its project in Tete.

In this project, in which it has a stake of 85 percent, Baobab Resources’ partner with the remaining 15 percent, is the International Financial Corporation (IFC) of the World Bank group. (macauhub)