- JP Morgan initiates with Overweight rating on Grange Resources
- Value the main attraction
- Upside from new project and increased production, some risks at Southdown
- Grange rated Buy by all five brokers offering coverage

By Chris Shaw

Grange Resources ((GRR)) is Australia's largest producer of magnetite iron ore, this through its wholly-owned Savage River mine in north-west Tasmania. Expansion will come via the Southdown mine in Western Australia, where production is expected to commence by 2015.

Savage River currently produces 2.4-2.5 million tonnes per annum of premium quality iron ore and pellets, with plans in place to lift this to annual output of around 2.7 million tonnes per year. Current mine life at Savage River is around 19 years, with further upside potential from exploration.

JP Morgan has picked up coverage on Grange Resources, initiating coverage with an Overweight rating. The positive view is primarily driven by valuation with JP Morgan's model suggesting a 100% return to valuation from current share price levels.

The other positive in JP Morgan's view is more than 85% of its valuation stems from the Savage River mine, which is already in production. This implies lower risk associated with expectations for Grange Resources, especially relative to peers that are still in the construction or commissioning stages of projects or are still considering whether to proceed with new developments.

A further plus for Grange Resources, according to JP Morgan, is no infrastructure constraints at either Savage River or Southdown, as port facilities relating to both projects are largely to be sole use.