We are marketing Hummingbird Resources (HUM LN) in London this week. The company’s Yanfolila Project in Mali 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% at a gold price of US$1,250/oz.
Recent company updates showed improvements in the project’s parameters. This should lead to the company being in a far stronger position to gain an attractive 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 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 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.
In a brief piece of company news (we have plenty of longer stuff for you below!), Pacific Environment*** has released an update. This focused on its continued success in its Thames Water contract, which it won through a competitive tender alongside its Dutch partner Odournet last March. The initial contract has a one-year duration and involves two of Thames Water’s key sites, with the option to extend both the duration and scope (Thames Water operates over 30 sites where the company’s pioneering EnviroSuite environmental monitoring system could be applied). The contract represented Pacific Environment’s first step into the wastewater sector, which the company believes doubles its overall addressable market through the >100,000 public wastewater facilities worldwide.
Pacific Environment is working closely with Thames Water at the two sites under contract, whilst looking towards the opportunity to upscale the material US$0.3m deal across the wider Thames Water group. Odournet’s subsidiaries in Spain and France have also been working to secure similar wastewater management agreements in other targeted European cities.
COMPANIES
ASX:PEN | A$0.78 | US$105m | Buy | TP : A$1.60
Secures US$15m Convertible to Fund Working Capital
Peninsula Energy has recommenced trading following the announcement that it has made substantial progress towards securing the finance required for the Stage 2 expansion of its Lance ISL uranium operation in Wyoming from 0.6Mlb pa to 1.2Mlb pa. It announced that it has secured a US$15m convertible loan facility from major shareholders RCF and Pala, and also that a term sheet has been signed for a Revenue Streaming Facility (RSF) for a further US$25m, with due diligence on this was at an advanced stage.
The US$15m convertible facility is to be used for general wellfield development, resource development drilling, Stage 2 engineering design, drilling and feasibility studies at the Karoo Project in South Africa and for general working capital purposes. The company plans to use the US$25m RSF to fund the engineering and construction of the Stage 2 Central Processing Plant (CPP) and the development of a further seven header houses and wellfield units.
The company also provided an update on the production ramp-up at Lance. A total of three header houses (out of the seven planned to be in production by the end of the year) are now operational and head grades were reported to have reached 27mg/L, equivalent to 61% of the planned peak grade for the first year of operation.
A number of Board changes were reported, with changing roles for John Harrison (moving to Non-executive Chairman) and Richard Lockwood (moving to a Non-executive Director) and Mark Wheatley replacing Neil Wharberton as a Non-executive Director.
COMMENT: Securing the US$15m convertible funds should provide the funds necessary to advance the Stage 2 expansion to the construction-ready stage and, at the corporate level, to progress the Karoo Project in South Africa. In addition to doubling the project’s production capacity to 1.2Mlb pa, a significant benefit of the Stage 2 development is that it is planned to reduce operating costs by US$9-10/lb, with this split roughly equally between economies of scale and bringing the back-end of the processing plant (elution, precipitation, drying and packaging) in house.
We reiterate our Buy recommendation, with a target price of A$1.60.
Three-stage ramp-up to 2.3Mlb pa U3O8 at Lance — Having received the final regulatory production approvals in early December, Stage 1 operations are ramping up at the Ross Permit Area, which should deliver a production rate of 600,000-800,000lb U3O8 pa through 2016 and 2017. Stage 2 is planned to increase production capacity from 2018 for a capital commitment of US$35m; meanwhile, Stage 3, commencing in 2020, will see the production rate brought to a steady state of ~2.3Mlb pa for US$78m capex over the remaining life-of-mine. JORC resources total 53.7Mlb, which the company states supports a mine life of at least 20 years.
Declining LoM all-in-costs to US$29/lb by 2020 — The company guides that all-in-costs for Stages 1, 2 & 3 will be US$41/lb, US$31-32/lb and US$29/lb, while the current long-term uranium benchmark price stands at US$44/lb U3O8.
Peninsula has signed five long-term contracts with investment-grade US and European utilities — These cover a total of 7.9Mlb at a weighted-average price of US$56/lb, to be delivered over the next ten years. Contracts cover 75% planned production from Stage 1 and 54% of Stage 2.
Current finances — Cash at the end of December 2015 was A$6.3m after operating cash outflows during the quarter of A$13.0m. During the December quarter the company secured a US$15m financing facility from Investec, from which it had drawn US$2m by the end of the year. This facility matures in December 2017 and has a current interest rate of around 6% pa.
US$15m convertible loan terms — The loans provided by RCF and Pala have a maturity date of 22 April 2017 and bear interest at 8%, plus an arrangement fee of 2%. They are convertible at the lower of A$0.80/share or the price of any equity issued prior to the repayment.
NORTH RIVER RESOURCES†
LON:NRRP | 0.1p | US$3.4m
Further High-grade Drilling at Namib and Submission of Mining Licence Proposal
North River Resources has provided an update on its ongoing diamond drilling programme to test depth extensions to the North and South orebodies of the Namib Project in Namibia. The 3,800m programme is now approximately halfway complete, with 18 holes having been drilled over 1,800m, eight of which were reported previously. Sampling or assays are still pending for seven. Of the three new drillholes, two intersected high-grade mineralisation:
• NLDD069 — 35.7m (true width of 9m) at 33.8% zinc
• NLDDK077 — 3.8m (true width of 1.5m) at 10.6% zinc and 5.8m (true width of 2m) at 12.2% zinc and 10.9% lead
Holes NLDDK078, NLDDK079 and NLDD070, which are awaiting assaying, are reported to show visually mineralised intercepts (although these are expected to be lower-grade due to the disseminated and semi-massive nature of the mineralisation).
Concurrent with the drilling update, the company has announced that it has formally submitted its proposal to the Ministry of Mines regarding its mining licence application for the Namib Project. The company believes the proposal takes account of the government’s objectives of providing opportunities for in-country project ownership and management.
COMMENT: Considered together, the results from the drilling programme to date indicate a continuation of high-grade mineralisation 80m below the existing Northern portion of the orebody, with results from infill and extension targets and the South orebody (being tested by the company’s Kempe drill rig) yet to be received. As previously highlighted, we calculate that, running our models at the current spot price, a 25% and 50% increase in mining inventory should boost project NPV10 approximately twofold and 2.5x respectively. At the DFS price deck of US$2,400/t zinc and US$2,300/t lead, we estimate that 25% and 50% rises in the mining inventory should raise project NPV10 by closer to 40% and 75% respectively.
The submission of the formal mining licence proposal clearly represents a positive step towards bringing the project to the production stage on the back of an expanded resource estimate and providing access to development funding. We look towards further newsflow on any outstanding issues regarding the impact of government’s proposed NEEEF bill on the structure of the proposal in due course; negotiations are ongoing.
WHITE ROCK MINERALS††
ASX:WRM | A¢2.2 | US$6.4m
Completed Acquisition of Atlas Resources
Following overwhelming shareholder support at last week’s EGM, White Rock Minerals has completed the 100% acquisition of Atlas Resources, and now holds the option to acquire wholly the Red Mountain VMS Project in central Alaska. White Rock issued 1.147 shares for every Atlas share, and 1.147 White Rock five-year options will be issued for every Atlas option, exercisable at A¢3.5/option. Hence, White Rock issued 63.8m new shares to Atlas shareholders (representing 19% of the proposed enlarged share capital), plus 6.4m options.
COMMENT: This acquisition provides White Rock with exposure to a high-quality exploration prospect in the zinc space, where an upcoming supply deficit is widely forecast. The company has been undertaking a desktop review of Red Mountain historical exploration data with a view to publishing a JORC-compliant exploration target and developing drill targets. This is coupled with White Rock’s second Mt Carrington Au-Ag project, where an update to the 3Q14 scoping study has recently been released; this demonstrated material uplift to project economics, driven by the improving domestic Australian gold price and falling opex, pushing estimated project IRR above 100%.
Red Mountain comprises Dry Creek and West Tundra Flats, with historical resources of 5.7Mt at 5% Zn, 2% Pb and 120 g/t Ag — Historical estimates are sourced from prior owner Grayd Resource Corp, based on drilling completed between 1996 and 1998. Drilling highlights to date include grades of 26% Zn and 12% Pb over 5.5m at Dry Creek, and 7% Zn and 4% Pb over 3m at West Tundra Flats Preliminary metallurgical test-work has indicated recoveries of over 90% Zn, >80% Au and >70% Pb & Ag. Statistical analysis of VMS clustering patterns indicates that, further to Dry Creek and West Tundra Flats, the Red Mountain camp has the potential to host a sizeable 10-15Mt deposit with similar Zn, Ag and Pb grades.
Updated scoping study for the company’s Mt Carrington Au-Ag project gives an NPV10 of US$44m with an IRR of over 100% — Capex for the seven-year LoM project remains low at A$24m, with a capital payback of <1 year, while opex estimates have been revised down to give project C1 cash costs of under A$800/oz (>US$600/oz). The initial 2014 scoping study was revised in mid-2015 to reflect the more favourable Australian gold price environment, and the incremental improvements to project economics are shown in the table below.
Improvements to Mt Carrington Project Economics between Scoping Study Updates
Downward opex revisions were primarily sourced from a softening in the labour market and lower assumed power costs following reassessment of ore characteristics and flow sheet design — With estimated C1 costs of ~A$750/oz, at an A$1,600/oz gold price the project would achieve operating margins of over 50%. In terms of capex, the Mt Carrington Project benefits from existing infrastructure valued at ~A$20m within the approved mining leases, comprising: a 1.5Mt tailings dam, 750ML freshwater dam, a reverse osmosis plant, access to grid power and a site office.