www.norsemangold.com
Norseman Gold plc is an AIM and ASX listed gold production and exploration company. Its key asset is the Norseman Project, which lies at the southern extent of the Norseman-Wiluna Greenstone Belt in the Eastern Gold fi elds Province of the Yilgarn Block, Western Australia. The Norseman Project is operated and managed by resource specialist, Tulla Resources Group Pty Ltd, which is focussed on producing 100,000 ounces of gold per annum by 2014 and increasing the resource base, currently standing at 3.4 million ounces of gold at an average grade of 4.7g/t. A review of operations is currently underway aimed at maximising future production and reducing costs.
Norseman Gold undervalued as it is set to double production this year, says broker
In spite of a more conservative view of potential production by both management and Seymour Pierce, Australia-focused Norseman Gold (LON:NGL, ASX: NGX) will double production this year according to the house broker.
Seymour Pierce said in a research note today that last week’s results for Norseman’s 2011 financial year showed the firm’s loss – A$12.2 million at the pre-tax level – as being a little lighter than it had expected, while it noted that production guidance for 2012 of in excess of 100,000 ounces had been reiterated.
The broker said that, as flagged in its recent notes, it had been expecting the need to downgrade its forecasts once the dust had settled on a turbulent 2011. Its 2012 and 2013 production expectations have now been lowered to match the company’s comments and it assumes 100,000 ounces and 105,000 ounces for 2012 and 2013.
“However, this still means a doubling of production this year. Norseman remains one of the lowest rated gold plays around, so successfully executing the new production plan should bring further improvements in the share price,” said Seymour Pierce.
Last year, Norseman’s gold sales of 50,200 ounces at an average price of A$1,374 per ounce and average operating costs of A$1,227 per ounce resulted in a pre-tax loss of A$12.2 million and an adjusted loss per share of 3.4 cents. During the year more than A$40 million was invested in mine development, property, plant and equipment and reduced exploration programme.
Net debt stood at A$4.3 million at the year end, but Seymour Pierce noted that the firm subsequently secured an A$15 million working capital facility that “should prove sufficient if production increases as expected”.
According to the broker, the other item of note in Norseman’s accounts is an A$15 million goodwill impairment charge the company has made to reflect a more modest production outlook over the next five years. “Average annual output is now assumed at 100,000 to 110,000 ounces against the previous 130,000 to 140,000 level – a sensible approach in our view given the recent experiences on site,” it said, pointing out that the highlight in terms of operational outlook is the expectation of first commercial production from the North Royal pit in Q2 2012.
Since Seymour Pierce has lowered its production expectations to match the company’s comments, it has also used conservative gold price assumptions (US$1,450 per ounce for 2012 and US1,325 per ounce for 2013) as well as conservative cost estimates to come up with earnings per share estimates for 2012 and 2013 of 2.9 cents and 7.2 cents respectively. “Current gold prices imply earnings at least twice as high though,” said the broker, which is maintaining its 52 pence per share resource-based valuation in the short term.
Shares in Norseman closed down 0.75 pence at 25.5 pence each today.
