www.frontiermining.com
Frontier Mining Ltd is a mineral exploration and development Company focussed on gold and copper deposits in the Republic of Kazakhstan. Through its subsidiaries and affiliates, Frontier locates, evaluates, acquires, explores and develops mineral properties. Frontier currently operates two licenses in Kazakhstan, Naimanjal (100% owned) and Benkala (50% owned). Naimanjal operations currently consist of five projects; a producing gold mine, a test stage gold production project, a potential copper porphyry deposit with associated gold and molybdenum, and copper/gold prospects along a 25km trend including both VMS and porphyry types. Benkala is a copper-molybdenum-gold deposit located in north-western Kazakhstan, within the Urals gold/copper ore belt.
Frontier Mining well placed for re-rating, says XCap
XCap Securities analyst Tim Freeborn expects to see a re-rating of Frontier Mining (LON:FML), which is about to start producing copper from its Benkala project in Kazakhstan.
Freeborn said one of the best times to buy a mining share is in the run up to production and Frontier is currently at that stage.
Freeborn said it was complicated in Frontier’s case as the company deferred the start-up from last autumn to March 2012, but the company now has a clear schedule.
The analyst also addressed funding concerns that have held the share price back. Frontier has recently sold its Maminskoye gold mine for US$37 million and secured total facilities of US$29 million from Russia’s Sberbank, which Freeborn said banished the issue.
Another issue that depressed the group’s market value was selling by lenders to two large shareholders. BMF International and Teratorn, which hold a combined stake of 9.4 percent in Frontier, have pledged their shares to their lenders.
Of the total 175 million shares, 160 million have been sold back to the two companies as the lenders are obliged to return the shares back to the holders when their three year loans are repaid.
“This means that not only is the source of selling largely exhausted but there is also the prospect of a serious squeeze,” said Freeborn.
Earlier this week, Frontier secured all construction approvals and permits, allowing it to commission all the equipment in the plant at the Benkala project.
Once the mine is established Frontier plans to expand production, taking it from 7,000 to 10,000 tonnes a year, and later expanding to 20,000 tonnes a year.
Speaking about the mining operation, Freeborn said the surface oxide mining at Benkala is “literally only scratching the surface” as the sulphide ore directly below holds seven times as much copper.
The analyst estimates capital expenditure for mining this ore at between US$250 and US$400 million.
Under the current copper price, Freeborn expects Frontier to be able to fund this fully by 2017 using the oxide cashflow.
XCap currently has a 10 pence target price for Frontier, which values the company at £186 million, compared to the current market cap of £64.6 million.
