Tietto Minerals Ltd (ASX:TIE) has had its BUY rating maintained and scored an increased target price of A$0.87, up from $0.60, from Foster Stockbroking following an upgrade to its gold resource after a definitive feasibility study (DFS) for Abujar Gold Project.
TIE’s open pit DFS for the 3.35-million-ounce Abujar Project in West Africa boosted forecast production in the first year by 30% from the pre-feasibility study (PFS) to 260,000 ounces of gold at an all-in sustaining cost (AISC) of US$651 per ounce.
The DFS indicates that Abujar can deliver 200,000 ounces of gold per annum over the first six years and 155,000 per annum over the life of mine (LOM) at approximately US$832 per ounce AISC.
Tietto Minerals is already seeking to capitalise on these findings with further infill drilling and aggressive regional exploration.
The following contains extracts from Foster Stockbroking’s Equity Research report:
Investment highlights
TIE’s DFS Abujar project showed marked improvement across all metrics compared to both the PFS and Expanded Study:
- Post-tax net present value (NPV) of US$722 million was almost double that of the PFS and 60% higher than the Expanded Study at same gold price (US$1,700 per ounce);
- Payback – which refers to the period necessary to recover the cost of investment – is now only 0.9 years;
- Internal rate of return (IRR) – which delineates profitability of potential investments – is at 95%; and
- TIE has a net present value divided by pre-production capital expenditure of 3.7x.
“Achieving semblance of scale”
According to Foster, the key driver of lift in NPV was increased processing which added an extra 500,000 million tonnes per annum to its plant, to equal 4 million tonnes per annum.
Gold production now averages 200,000 ounces per annum over the first six years (168,000 ounces in PFS) and 155,000 ounces per annum over the LOM (134,000 ounces PFS). Mine life has also been extended to 11 years from eight in the PFS.
Despite scaling up gold production at its plant, capital expenditure for the site has been significantly reduced due to lower pre-strip predictions, as previous inferred resources classified as waste have been converted to ore following the DFS.
This also resulted in a lower strip ratio of 6.0x vs 8.2x in the PFS, which contributed to LOM AISC falling to US$832 per ounce from US$903 per ounce.
“Momentum building.”
Sensitivity on the DFS showed Abujar metrics still attractive even at the lower US$1,200 per ounce gold price – with NPV of US$278 million, 1.8-year payback, IRR 42% and NPV/capex ratio 1.4x.
Key milestones:
- TIE is expecting Mining Convention, financing and Final Investment Decision (FID) by end of year;
- A resource upgrade is targeted from further infill drilling for measured resources;
- Drilling and metallurgical work on Abujar Gold underground resources and heap leach potential of APG are also underway;
- TIE’s mill has been secured and is currently in Johannesburg for refurb, while access road and camp construction have also started; and
- Construction is expected to be 12 months and TIE is aiming for first production in 4Q calendar year 2022.
Earnings and evaluation
Foster upgrades TIE NPAT to A$127 million and A$173 million for end of FY23 and end of FY24 (first full year of Abujar production) vs A$18 million and A$124 million previously.
The stockbroking company estimates Private Equity and EBITDA (earnings before interests, taxes, depreciation and amortisation) multiples at end of FY23 are 2.4x and 1.4x only.
Foster’s valuation rises on higher gold production and longer LOM driven by the DFS. The broker derived Abujar’s unrisked valuation (100%) at US$591 million, the key difference from that of the DFS being Foster’s use of a 10% discount rate vs 5%. They also employ a long-term gold price of US$1,652 per ounce (DFS assumed US$1,700 per ounce).
Foster’s TIE valuation assumes A$310 million of funding required for Abujar construction, working capital, corporate, exploration and finance costs. They assume a debt: equity funding mix of 60:40.
Recommendation
“We maintain our BUY and raise 12-month PT to A$0.87 (previous A$0.60) based on our risked valuation. Key catalysts include: Resource upgrade; Mining Convention; Heap leach and underground studies; Financing; and FID.”