LON:HUM | 24p | US$36m | Buy | TP : 45p
Final Results for 2015
Hummingbird Resources has announced its final results for the year to December 2015. The accompanying statements reviewed progress at the company’s projects, particularly referencing the results of the optimised mine plan for Yanfolila that were published in February. This delivered an attractive project with an IRR of 60% assuming a gold price of US$1,250/oz. The company is targeting first gold from this project in 2017.
Cash outflows from operations were US$4.6m over the year (including US$3.9m of G&A) and exploration and development expenditures were US$10.5m. Net cash from financings included US$10.8m raised as equity and a net increase in debt of US$4.0m. Cash at the end of December 2015 was reported to be US$7.2m (this has since been updated to US$5.5m in March) and debt was US$15.0m, made up of the Taurus bridge facility, which is now due to be repaid on 8 September 2016.
COMMENT: The optimised mine plan for the Yanfolila Project presents an attractive mid-scale, high-grade, open-pittable gold development project with low capital intensity and projected operating costs. These attributes combine to generate a very healthy project IRR of 60% at a gold price of US$1,250/oz. Comments in the statements accompanying the results referred to the fact that the improvements in the project’s parameters and 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.
We provided a detailed review of the outlook for the company and its valuation in our piece Hummingbird Resources — Updated Commentary, 13 April 2016. We established our target price 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, in view of the pending finalisation of the project financing, we continue to value Yanfolila on a 0.7x multiple to derive our target price. We maintain our BUY rating and target price of 45p.
LON:WTI | 0.5p | US$7.5m | Under Review
Quarterly Operations Update — Tschudi
Weatherly International has announced a production update for the quarter ending 31 March 2016. Production of copper cathode from the Tschudi copper heap leach operation was 4,442t during the quarter, 4.5% ahead of the nameplate capacity run-rate of 17,000tpa. C1 cash costs were US$3,429/t (US$1.56/lb), some 16% below those achieved in the December quarter and well under the most recent company guidance of US$4,250-4,350/t (US$1.93-1.97/lb) for the financial year to June 2016. This was reported to have resulted from a focus on cost control and productivity, as well as from the depreciation of the local currency. After the effects of hedging, the sales price received during the quarter was US$4,742/t (US$2.15/lb). Production from the June quarter was reported to have been pre-sold at a price of US$4,912/t (US$2.23/lb) compared with the current price of US$4,716/t (US$2.14/lb).
We note that the share price has reacted very positively to this release in early trading; we’ll continue to monitor this over the day.
COMMENT: Having achieved designed copper production in December 2015, the maintenance of this rate during the March quarter was very positive, as was the reduction in operating costs to 20% below guidance. Nevertheless, as acknowledged by the company, the main issues at the corporate level remain balance sheet-related. Debt and rolled-up interest stand at US$101m. Whilst initial repayments have been deferred until May, debt service costs are expected to be equivalent to an average of US$0.73/lb from start-2016 to the end of 1Q17. Including G&A and Central Operations care and maintenance costs, we estimate that a break-even copper price of around US$2.67/lb (US$5,880/t) would be required for the company to service its debt over the next 15 months under the current profile.
Operational performance at Tschudi has built up considerable positive momentum over the past two quarters, and further improvements from a potential expansion of the operation from 17,000tpa to 20,000tpa and an associated potential reduction in C1 costs from US$4,080/t to US$3,865/t (US$1.85/lb to US$1.75/lb) are possible. However, in the absence of a substantial rise in the copper price, we anticipate that the company will require a further rescheduling of its debt repayments with Orion (which we note has proved to be a highly supportive equity and debt holder to date). Pending further announcements on this, we are keeping our recommendation under review.