Hummingbird Resources (LON:HUM) shares should rise if it can gets its Yanfolila gold project in Mali financed and built, said broker Cantor, which rates shares a 'buy'.
The point appears rather obvious but the City broker is drawing attention to the relationship between financing and building a project and increasing its net present value.
"The multiple revisions to the Yanfolila project have had the desired effect of lifting NPV and making the project robust at gold prices below today's level. However to realise a greater proportion of Yanfolila's value , HUM must get the project financed and built," said analyst Asa Bridle.
If they can't do this, the shares won't go up unless the project or company is sold at a premium.
Bridle puts a target price of 37p on the shares, which is an impressive 85% increase on the current price of 20p.
Indeed, he says that's based just on Yanfolila and should be regarded as "conservative" as the firm's Dugbe project in Liberia offers further upside.
In February, a reworking of the economics at Yanfolila increased the project’s value by a quarter.
A definitive feasibility study (DFS) showed upgraded designs for the open pit mine and new metallurgy and technical data added 7% or 44,000 ounces of gold to reserves. It takes the total to 709,800 ounces.
Net present value (NPV) rose to US$109mln from US$88mln based on a gold price of US$1,100, while using a gold price of around US$1,250 per ounce, the NPV jumped 84% to US$162mln.
The design changes also lowered the cost of production to US$686 per ounce, a US$34 cut, clearly marking the site as one of the highest margin, undeveloped gold projects in Africa.
The firm has already been furnished with US$15mln of project financing from debt provider Taurus and initial earthworks at the property have been completed.