FROM THE BROKING DESK
We are marketing Dan Betts, CEO, Shaun Bunn, Technical Director, and Bert Monro, Business Development Director, of Hummingbird Resources (HUM LN) in London on Wednesday, Thursday and Friday this week. The company is developing the Yanfolila Project in Mali. This is an attractive mid-scale, high-grade, open-pittable gold development project with low capital intensity and operating costs and high projected returns. These attributes combine to generate a very healthy project IRR of 60% and US$162m NPV at a gold price of US$1,250/oz.
Comments in statements since its DFS was released (18 January) and accompanying its results (13 April) showed improvements in the project’s parameters. The returns that have been delivered should lead to the company being in a far stronger position to gain the best possible financing package for the project; it is currently working through these options and hopes to be able to update the market on progress in the near future. You can read Jim Taylor and Imogen Whiteside’s latest report here: Hummingbird Resources — Updated Commentary, 13 April 2016.
Key points of the Yanfolila Project are a potential mineable inventory of at least 1.0Moz, underpinned by reserves of 710,000oz. The results of an updated evaluation of the project were published on 29 February. This was based on an updated Phase 1 reserve of 710,000oz of gold at a grade of 3.1 g/t at the Komana East and Komana West pits, a 7% increase on the previous reserve.
Potential additional mining inventory of 290,000oz requires work to be added to reserves. Additional Phase 2 mineable inventory of 121,000oz has been identified at three satellite deposits — Guirin West and Sanioumale East and West — which was based on JORC Indicated resources. A further 169,000oz of potential mineable inventory at the Gonka deposit was based on a SAMREC Inferred resource and an internal resource estimate by Gold Fields. The company plans to upgrade these resources to allow their conversion to JORC reserves, further de-risking the project.
A US$79m open-pit development to produce an average of 107,000oz pa over a mine life of 7.5 years at AISC of US$695/oz. These attractive parameters exclude the potential development of the Gonka deposit, but do include the three other satellite deposits. The resulting capital intensity of US$103/oz of gold recovered is amongst the lowest in the West African peer group, and AISC of less than US$700/oz puts it amongst the higher-quality gold development projects on a cost basis. The development of Phases 1 & 2 delivers an IRR of 60% at US$1,250/oz.
We have a BUY rating and target price of 45p. We established our TP at the time of the DFS publication in January 2016, since when the potential development of Gonka and the optimised mine plan have been announced, adding considerably to the value proposition. However, pending the finalisation of the project financing and the proportion of debt and equity, we continue to value Yanfolila on a 0.7x multiple to derive our target price of 45p. The shares currently trade around the 25p level. Please let us know if you would like a meeting.
LON:AEY | C$0.025 | US$3.6m | Speculative Buy
2015 Annual Results
At the corporate level, Antrim Energy maintained a strong balance sheet, with working capital at 31 December of US$9.6m (including US$9.9m cash), with the company benefiting from being free of debt and decommissioning liabilities. With its four well abandonment programme in the North Sea completed, which was undertaken as part of a larger campaign, this led to significant cost reductions of US$1.9m being realised, and the company is continuing to seek strategically aligned M&A opportunities. We understand Antrim would look to any such acquisition having the capacity to be cashflow-generative in the near term, with the ability to remain viable in a continued low oil price environment.
Operationally the company is looking to extend the first exploration term on Irish licence FEL 1/13, due to expire in early 2016, by a further two years, associated with an additional technical work programme. The company is also seeking a new farm-in partner to help fund additional work over the acreage. Operating cash outflows for 2015 stood at (US$3m), relative to (US$4.6m) in 2015, due to a US$3.2m decrease in G&A costs and US$2.2m forex gains, partially offset by decommissioning costs.
COMMENT: We continue to believe that Antrim’s robust working capital position, debt-free balance sheet and the removal of any risk relating to decommissioning obligations place it in a strong position relative to its peers. Antrim further benefits from a low and declining G&A cost base, and limited near-term financial commitments (assuming government acceptance of the exploration term extension on FEL 1/13), underscoring the company’s ability to conserve balance sheet strength pending the market recovery.
As well as searching for a farm-in partner to expedite work on FEL 1/13, the company is continuing to review opportunities for potentially transformative M&A activity. The company has engaged with independent advisers to undertake in-depth evaluation of over 15 possible transactions from over 100 companies initially contacted, with the priorities for Antrim being: a near-term development focus; use of funds visibility; and cash-flow generation in the current or near term. The company is evaluating M&A opportunities as per these criteria, with the aim of leveraging its cash position to maximise shareholder value.
100% interest in FEL 1/13, subject to finalisation and government approval of the transfer of Kosmos’ interest — Following Kosmos’ withdrawal from its Irish interests in order to focus more specifically on its African exploration portfolio, Antrim will become operator of the acreage at no additional cost. Kosmos farmed into the licence in 2013, taking over operatorship and carrying the full costs of a 3-D seismic programme, in addition to reimbursing a portion of prior exploration costs incurred by Antrim.
Antrim had previously announced an aggregate summary of unrisked gross best estimate prospective resources for the 17 independent leads evaluated within FEL 1/13 — These were 260MMbbl of oil, 4.7Tcf of gas and 87MMbbl of condensate. The two largest leads (‘C’ and ‘M-3’) represent 43% of the total unrisked property best estimate prospective boe resources — 126MMbbl of oil, 1.9Tcf of gas and 35MMbbl of condensate. Prior to the notice to withdraw, Kosmos had prepared a prospect inventory, highlighting three prospects (two tilted fault blocks and a submarine fan), one of which has yet to be independently reviewed.