COMPANIES
METMINCO*†
ASX:MNC | A¢0.4 | US$10.4m | Speculative Buy
Secures Funding of up to US$45m to Complete Los Calatos Feasibility Study
Metminco, having announced the acquisition of the Quinchia Gold Portfolio in Colombia at the end of May, has now stated that it has executed a binding Heads of Agreement with CD Capital Natural Resources Fund III LP for staged expenditures of up to US$45m on its Los Calatos Copper Project in Peru; this will fund pre-feasibility and feasibility studies over a 3-4 year timeframe, in return for a project interest of up to 70%. The transaction will be associated with a corporate restructuring, transferring the project into a new private operating entity — Los Calatos Mining — into which CD’s equity investment will be made.
COMMENT: The company has repeatedly expressed its intention of securing a strategic partner for Los Calatos, and this transaction has potentially secured the funding to complete a feasibility study on this large copper porphyry project in southern Peru. This has been achieved with no dilution at the corporate level and at a significant premium to any potential equity investment in the company.
We believe that de-risking the project through advancing it to PFS/DFS stage should prove highly value-accretive, and it should emerge from this process into a more buoyant copper market than the current one. We additionally highlight that the recently-completed acquisition of the Quinchia Gold Portfolio in Colombia, which includes near-feasibility stage Miraflores, the large porphyry target of Tesorito and the Dosquebradas deposit, represents a source of gold commodity exposure and near-term development potential.
This is clearly a very positive development and we continue to recommend Metminco as a Speculative Buy.
The funds will be invested in three tranches over a period of three years — The financing is planned to enable the completion of pre-feasibility (~US$15m) and feasibility (~US$25m) studies on Los Calatos.
• Tranche 1 — On settlement, CD Capital Fund will invest US$16m into the project in return for a 51% interest in holding company Los Calatos Mining.
• Tranche 2 — CD Capital Fund will have the option to invest US$14.5m in return for a further 14%, taking its interest to 65%.
• Tranche 3 — CD Capital Fund will also have the option to invest US$14.5m in return for an additional 5% interest, taking its stake in Los Calatos to 70%.
Tranche 1 expected to be completed in July 2016 — This will follow execution of the Equity Subscription Agreement and satisfaction of conditions precedent, including: reorganisation of Metminco’s interests in the project into Los Calatos Mining; the securing of relevant governmental approvals; and completion of legal due diligence. Full details of the terms of the Equity Subscription Agreement will be announced upon completion.
As per the September 2015 Strategic Mining Study, Los Calatos has the potential to deliver 50,000tpa of copper for 22 years at AISC of USS$1.45/lb — The Los Calatos Project had previously been outlined as a mega, bulk mining, open-pit and block caving operation, as per the August 2013 study. It was subsequently downscaled to enable higher returns at improved grades and lower capex. The new project scope comprises a mineable resource inventory of 134Mt, grading 0.89% Cu and 0.036% Mo, supporting a 6.5Mtpa underground mining operation.
Los Calatos’ post-tax NPV8 was US$447m with an IRR of 17% at US$3.00/lb copper, with initial capex of US$655m — Both Los Calatos’ sustaining costs and the capital intensity of US$13,100/tpa of capacity are competitive relative to development-stage peers. The IRR of 17% at a copper price of US$3.00/lb and a molybdenum price of US$11.16/lb, derived from the scoping study level report, demonstrates the project’s development potential in a recovering copper price environment.
Acquisition of Quinchia Gold Portfolio expected to be completed shortly — Metminco expects South African Reserve Bank clearance for the acquisition of the Colombian Quinchia Gold Portfolio from RMB to be granted imminently. Following this, Metminco will issue 350m of its shares to RMB (10.5%) and reimburse RMB for A$170,000 of expenses to complete the acquisition. The pre-production cash consideration total of A$7.5m is due over up to four years and is back-ended, minimising the upfront cash requirement. Once in production, further NSR-based payments totalling A$7m will be made.
Near-term development potential at Miraflores — The latest Technical Report numbers outlined a 42,000oz pa 12-year LoM operation with attractive AISC of US$682/oz, capital intensity of US$164/oz and post-tax NPV8 of US$47m at a US$1,200/oz gold price. The company sees scope for recent reductions in mining and capital costs across the industry, combined with an increased production rate to increase the NPV and project returns further. The company aims to complete a feasibility study by 1Q17.
Prospective large-scale exploration target at Tesorito — Located 800m to the SE of Miraflores, Tesorito is the highest-priority exploration target within the Quinchia Portfolio. All of the three holes drilled to date have encountered consistent mineralisation and alteration, with the highlight being TS-DH-02’s intercept of 384m at 1.0 g/t Au starting from surface. The company believes Tesorito has the potential to represent a substantial gold-copper porphyry system, typical of the host structural trend (the Mid-Cauca porphyry belt), which already houses giant deposits such as AngloGold’s 33Moz La Colosa and Gran Colombia’s 14.5Moz Marmato.
HUMMINGBIRD RESOURCES*†
LON:HUM | 23p | US$35m | Buy | TP : 38p
Extension of Deadline for Overallotment Option
Hummingbird Resources has announced that, further to its agreed placing and subscription to raise £45.8m/US$67m to fund construction of the Yanfolila Gold Project in Mali, the deadline for applications under the overallotment option will be extended from 13 June to 16 June. The overallotment provision is for up to 31.26m shares at 22p/share, which could increase equity raised to £52.7m/~US$77m. Results of the overallotment option are to be announced on 20 June, the day of the General Meeting to secure shareholder approval for the equity issues. Pursuant to this, new shares allotted under both the placing and subscription and the overallotment option are expected to be admitted on 21 June 2016.
COMMENT: As we stated in our piece Hummingbird Resources — Raises US$67m for Yanfolila Development, 2 June 2016, the US$67m equity fundraise represents a huge milestone for the company towards being able to fund fully the construction of its flagship high-return Yanfolila Project. At a US$1,250/oz gold price the project delivers an NPV8 of US$162m, with an attractive 60% IRR, and our calculated capital intensity of US$103/oz of gold recovered is amongst the lowest in the West African peer group.
We estimate bringing the project to production will need comparatively modest capital of US$88m, comprising US$79m of capex and US$9m of working capital. Accounting for corporate working capital and the US$15m required to repay the Taurus bridge loan, we estimate a total funding requirement in the region of US$110m, the balance of which we expect to be secured as debt finance. Whist we understand the company is in discussions with a number of debt providers, full uptake of the overallotment option could decrease the estimated outstanding funding requirement from around US$50m to US$40m.
Completion of the equity component of the financing should put the project on track for first production before the end of next year, with construction expected to take around 12 months to complete. Operationally, we see value upsides as including the establishment of JORC-compliant resources/reserves for near-mine satellites, specifically the high-grade Gonka deposit, and their inclusion in the mining inventory.