HUMMINGBIRD RESOURCES
LON:HUM | 25p| US$112m | BUY | TP : 38p
Interim Results & Operational Update
Hummingbird Resources has announced financial results for the six months to June 2016. The company continues to move the Yanfolila Gold Project in Mali towards full construction and has maintained its target of achieving the first gold pour by the end of 2017. EPCM contractor SENET is undertaking detailed engineering work and the civil works contractor is set to commence plant civil works in October.
With respect to its financials, the company raised a total of US$75m from June to August this year. Of this, US$51m was held on the balance sheet as cash at the end of June, with a further US$17m under receivables, and US$4m was raised after the period end in August.
COMMENT: Although civil work at Yanfolila is planned to commence in October, full construction activities await the completion of detailed engineering and securing the outstanding funding for the project, about which there was no update in the interims, but which we have previously suggested could be up to US$50m; we expect the company would be keen to finalise this ahead of the scheduled repayment of Taurus’s bridge loan, for which US$16m is due on 8 December.
We continue to rate the shares as a Buy with a target price (TP) of 38p, which we updated in our piece Hummingbird Resources — Raises US$67m for Yanfolila Development, 2 June 2016. The TP is based on a risked sum-of-the-parts valuation assuming a long-term gold price of US$1,250/oz. It includes the main Yanfolila Project on the basis of an NPV8 to which we have applied a risk multiple of 0.85x. We have added values for the Gonka satellite deposit and the Dugbe Project and have adjusted for corporate G&A and net cash.
Yanfolila remains a very attractive project that is awaiting the finalisation of the debt portion of its funding — Yanfolila has a total resource of 2.2Moz, within which the current mining inventory is 1.0Moz, comprising reserves of 710,000oz at 3.1 g/t in the Komana East and West deposits and a further 121,000oz at 2.2 g/t within three satellite deposits. This material underpins the optimised mine schedule, which is planned to deliver 132,000oz of gold in the first full year of production and an average of 108,000oz over the project’s planned 7.5-year life. AISC have been estimated at a very respectable US$695/oz and capital costs at a very attractive level of US$79m. Assuming a gold price of US$1,250/oz, this project delivers an NPV8 of US$162m and a very attractive IRR of 60%.
Gonka deposit potential for further upside — A potentially mineable resource inventory of 169,000oz has been outlined at the Gonka satellite deposit. A desktop study suggested that its development could add US$24m to the project’s NPV. Infill drilling and further detailed planning is expected to commence next year.
We continue to believe that securing the debt finance portion of the project finance for Yanfolila remains the next key milestone for the company — We have estimated that the company’s total financing requirement (including the capex and working capital requirement for Yanfolila, other corporate costs and the repayment of the Taurus facility) could be around US$110m. We expect that the debt requirement could be around US$40-50m.