ASX:MNC| A¢8.7 | US$8m | Speculative Buy | TP : A¢60
Completed Financing Shifts Focus to Feasibility Milestones
Metminco has confirmed the completion of its previously-announced A$5m financing, which will be used for the Miraflores feasibility study. With this secured, the company can now focus on progressing the feasibility study (FS) and has laid out a series of related milestones. In April 2017 the company expects to receive a decision on its application to commence underground development, as well as the results of the Phase 1 metallurgical test-work. In May the company will complete the Phase 2 metallurgical test-work, which will then inform the completion of the FS before the end of 1H17.
The company has also published its quarterly results that highlighted significant (previously-announced) developments. These include the Miraflores FS and the Los Calatos transaction with CD Capital to finance the PFS and FS. Also worth noting is the share consolidation (50:1) approved at the shareholder meeting on 20 December 2016, and the company’s 31 December 2016 cash position of A$9.6m, of which it only controlled A$0.1m. As the A$5m equity raise was only completed on 31 January 2017, this was not included in the year-end balance.
COMMENT: With the finalisation of the previously-announced financing, the company is now largely funded to complete the FS (expected by the end of 1H17). The milestones laid out by management indicate both transparency and a commitment to holding itself accountable to a development timeline.
We believe that the FS has the potential to firm up the value proposition at Miraflores and that the company’s interest in the Los Calatos Project represents real option value in a rising copper price environment. We continue to recommend Metminco as a Speculative Buy.
Miraflores acquired in May 2016 — Metminco acquired Miraflores Compania Minera SAS (Miraflores Minera) from RMB for 8m (post-consolidation) MNC ordinary shares and A$0.5m up-front, to be followed by deferred cash payments due annually over four years (commencing 20 June 2017). Payments in 2017 and 2018 will be A$1.0m each, followed by A$3.0m in 2019 and A$2.0m in 2020. There will also be a royalty due of up to A$7m from operating cashflow. Miraflores Minera holds a portfolio of deposits, exploration targets and development targets in Colombia, of which the Miraflores Project forms a part.
Miraflores FS follows a scoping study in September 2016 — In September 2016 SRK completed a preliminary mine design for the underground-only development of the Miraflores Project. The operation that had been proposed previously included a large open pit, but the reduced footprint of the all-underground operation was deemed preferable from an environmental-impact perspective, which would help in the EIA process. The FS will focus on the all-underground option. The scoping study outlined a 4Mt operation at 3.51 g/t Au with a nine-year mine life producing 50,000oz pa in its steady-state. The mining method was underground longhole stoping with backfill, while processing was gravity concentration followed by flotation and cyanidation. Capital costs were estimated at US$98m, while cash costs and AISC were US$555/oz and US$648/oz, respectively. At a gold price of US$1,300/oz, the NPV8% was US$73.4m and the IRR was 26%.
CD Capital has a 51% interest in Los Calatos — The financing agreement allows Metminco to finance the completion of the pre-feasibility (~US$15m) and feasibility (~US$25m) studies on Los Calatos in Peru. Tranche 1 has been completed for US$16m.
• 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 (completed).
• 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%.
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.
Net decrease in cash before financing was A$2.5m in the quarter — Cash at the end of the quarter was A$9.6m, A$9.5m of which represented Metminco’s 49% share of the cash held by Los Calatos. While this left the company with only A$0.1m at the end of the quarter, the company had already announced the equity raise in November which had yet to close. On 31 January the company announced receipt of the proceeds of that fundraising. Cashflows for the next quarter are expected to be A$3.9m.