HUMMINGBIRD RESOURCES

Transcription

1 This research is intended for UK institutional investors only and market professionals. It is not intended for retail customers and any retail customer should seek professional, independent advice before investing. MINING 2 nd March 2015 HUMMINGBIRD RESOURCES Results of the optimisation study 36p # Yearend May 2013A 2014A 2015E 2016E Key data Revenue (US$m) 10.6 Rating (12 month) BUY EBITDA (US$m) (3.1) (3.3) (5.6) (0.7) Price Target 93.4p (from 88.7p) Adj. pretax Profit (US$m) (3.1) (3.8) (6.3) (3.2) Risk High Adj. EPS (c) (5.7) (6.5) (7.8) (3.7) Sentiment Positive DPS (c) Ticker HUM.L Net Cash/(Debt) (US$m) (21.9) (95.7) Shares in issue 84.8m BUY Market cap 30m P/E (x) (10.2) (9.0) (7.5) (16.9) 12mth price range 64p33p Dividend yield (%) Net debt (H115) US$2.4m EV/EBITDA (x) (6.4) (7.3) (12.4) (205.9) Next event Construction H115 SOURCE: Northland Capital Partners Limited estimates # Priced at market close, 27/02/2015 Hummingbird Resources optimisation study at the Yanfolila Gold Project increases the Company s NPV 8 estimate for the project by 11% to US$72.4m but significantly decreases the IRR by 34% to 35%, due to higher levels of initial capex, up 38% to US$71.6m (total development capex US$76.5m). Initial production has been increased 23% to 100,000oz Au and life of mine production been increased 44% to 75,000oz Au. The life of mine has also increased to seven from six years. Recoveries are 2% lower at 94% and the allin sustaining costs (AISC) are up 5% to US$733/oz Au. We believe the completion of the optimisation study is a significant derisking event that should allow the Company to secure the finance from Taurus to develop the project. As a result, we have decreased our development stage risk for the project to 10% from 15%. We updated our model based on the results of the optimisation study and we have increased our valuation of Hummingbird s 85% interest in the project to 32.1m from 22m. However, we also take into account the higher administrative costs and exploration expenses in the interim results. The end result is an increase in our price target to 93.4p per share from 88.7p. Company description Hummingbird Resources is a West African gold focused exploration and development company. It is moving the Yanfolila project, located in Mali, towards production in H116 and its Dugbe 1 project, located in Liberia, to production in Taurus Bridge facility: Taurus is expected to extend its bridge financing package to US$15m from US$10 while it finalises its due diligence and documentation for the full draw down. Taurus Finance facility: We assume in our model that the US$75m Taurus Finance facility is increased to US$95m to fund the US$19.6m increase in initial capex relative to previous expectations. Upside potential: In reality Yanfolila is likely to have a longer mine life than the initial seven years as the current mine plan only includes 6.3mt of ore compared to the gold inventory of 20.1mt. These additional tonnages can be brought in to the mine plan by steeping the pit walls, extending the pits and mining underground. Further tonnages could come from a number of exploration targets. Valuation: We value Hummingbird Resources at 93.4p per share an upside of 158% on the current share price. Contacts ANALYST Dr Ryan D. Long +44 (0) rlong@northlandcp.co.uk GENERAL T: +44 (0) F: +44 (0) STX: E: info@northlandcp.co.uk Website: Northland Capital Partners Limited is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered Office: 131 Finsbury Pavement, EC2A 1NT. Registered in England No

2 INVESTMENT APPRAISAL The completion of the optimisation study at Yanfolila is a significant derisking event for Hummingbird Resources and as a result of its publication we have lowered the development stage discount we apply to the project to 10% from 15%. The optimisation study highlights an 11% increase to the NPV 8 to US$72.4m, assuming a gold price of US$1,250/oz Au, but a 34% decrease to the IRR for the project to 35% (Table 1). An IRR of 34% is still a robust return for a gold project in the current low gold price environment and because of the 44% increase to life of mine production the project will be better positioned should the gold price improve. 11% increase to NPV 8 but 34% decrease in IRR Table 1: Comparison of the optimization study and previous expectations for Yanfolila Yanfolila Project Optimisation study results (02/03/15) Economic based on Gold fields study (12/06/14) Percentage change (%) Gold price (US$/oz) 1,250 1,250 0 Initial production (oz) 100,000 81, Initial mine life (years) LOM production (oz) 75,000 52, Initial capex (US$) Average recovery (%) (2) Annual processing (mt pa) Payback after tax (years) Direct C1 cash operating costs (US$/oz) Allin sustaining costs (US$/oz) After tax NPV (8%) (US$m) After tax IRR (%) (34) SOURCE: Company We have assumed in our model that the US$19.6m increase in capex is funded by an increase to the proposed US$75m Taurus Finance facility to US$95m, but the Company has given us no guidance on this and it is possible that it could also be funded from equity that would increase shareholder dilution. Yanfolila will produce just under 100,000oz Au in its first year of full production and over the mine life of seven years it will produce an average of 75,000oz per annum (Chart 1),though this varies significantly between years as the average grade extracted broadly declines with the mines age (Chart 1). The project will generate revenues of between US$110m and US$90m per annum while at full production (Chart 2), assuming a flat gold price of US$1,250/oz for the bulk of the mines life (Chart 2). The AISC varies considerably over the life of the mine from as low as US$584/oz Au to as high as US$933/oz Au (Chart 3) and is heavily influenced by changes to the grade (Chart 3 & Chart 1). As a result, the cash from operations due to Hummingbird shareholders varies from US$39m to US$23m while at full production but averages US$30m (Chart 3). Over the life of the mine we expect positive cash generated from operations due to Hummingbird shareholders to be US$110m (Chart 4). The results of the optimisation study combined with the reduced development risk applied to our valuation have a positive effect increasing our valuation of the Yanfolila project to 32.1m from 22m. However, we have also updated our model following the interim results (27/02/15) where there was higher than expected administrative expenses and exploration costs and as a result, our price target increases to 93.4p per share from 88.7p (Table 2). US$19.6m increase in capex Life of mine of cash flow to Hummingbird shareholders of US$110m NCP valuation of project increases to 32.1m 2

3 Cash due to Hummingbird shareholders from operations (US$m) AISC (US$/oz) Cummulative cash due to Hummingbird shareholders from operations (US$m) Grade( g/t Au) Gold production (oz) Revenue (US$m) Gold price (US$/oz) Hummingbird Resources Charts 14: Hummingbird Resources metrics , , , ,000 50, ,400 1,200 1, Financial years Dugbe 1 Au production Yabfolila Au production Yanfolila grade Dugbe 1 grade 150 (1,400) Dugbe 1 Yanfolila oxide mine Gold price 700 Financial years (50) (100) (1,200) (1,000) (800) (600) (150) (400) (200) (250) (200) (100) (200) (300) (400) Finanical years Financial years Dugbe 1 Yanfoilia AISC Yanfolila oxide mine Dugbe 1 AISC Dugbe 1 Yanfolila oxide mine SOURCE: Northland Capital Partners Limited estimates Table 2: Valuation Summary NCP valuation of the Yanfolila project ( m) 32.1 NCP valuation of the Dugbe 1 project ( m) 50.5 Net cash/(debt) H115A ( m) (2.4) NCP valuation of Hummingbird Resources ( m) 80.2 Upside/(downside) (%) Current share price (p) 36.3 Shares in issue (m) 85.9 NCP valuation per share (p) 93.4 SOURCE: Northland Capital Partners Limited estimates 3

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5 UPDATED YANFOLILA DCF Yanfolila oxide mine Total/ Year to 31st May (US$m) Average Gold price (US$/oz) 1,160 1,188 1,250 1,250 1,250 1,250 1,250 1,250 1,250 Waste mined (t) 1,760,000 12,265,667 13,980,333 13,935,000 10,783,000 9,424,000 4,708, ,667 67,677,333 Ore mined (t) 116, , , , ,667 1,002,667 1,002, ,333 6,298,000 Ore mined grade (g/t) Stockpile (t) 116,000 66,000 17,000 Ore processed (t) 116, , , , ,667 1,002,667 1,002, ,333 6,414,000 Ore processed grade (g/t) Gold recovery (%) Gold produced (oz) 9,767 94,613 77,338 72,316 86,017 77,069 72,297 20, ,350.5 Inventory (oz) 814 7,884 6,445 6,026 7,168 6,422 6,025 1,744 Gold sold (oz) 8,953 87,542 78,778 72,735 84,875 77,815 72,695 25, ,606.0 Revenue (US$m) Transport and refining costs ($m) (0.0) (0.5) (0.4) (0.3) (0.4) (0.4) (0.3) (0.1) (2.5) Net Revenue (US$m) Cash cost per ounce (US$/oz) (751.6) (569.4) (761.0) (822.7) (604.5) (631.4) (507.9) (485.0) (641.7) Opex (US$m) (7.3) (53.9) (58.9) (59.5) (52.0) (48.7) (36.7) (10.2) (327.1) Development capex (US$m) (7.5) (69.0) (76.5) Sustaining capex (US$m) (2.0) (2.0) (3.0) (3.0) (2.0) (0.5) (12.5) Operational profit (US$m) (7.5) (65.7) Gross revenue royalty 4.75% to 2018 then 4% (US$m) (0.5) (5.2) (4.7) (3.6) (4.2) (3.9) (3.6) (1.3) (27.0) Taurus gross revenue royalty 1% (US$m) (0.1) (1.1) (1.0) (0.9) (1.1) (1.0) (0.9) (0.3) (6.4) Depreciation (US$m) (1.8) (7.4) (7.8) (8.1) (8.3) (8.5) (8.6) (2.2) (52.7) Historic cost recovery (US$m) (4.2) (16.7) (16.7) (16.7) (16.7) (4.2) (75.0) Taxable profit (US$m) Tax payable (US$m) (7.9) (2.5) (7.1) (10.1) (14.1) (6.1) (47.8) 5

6 AISC ($/oz) (814.2) (657.1) (860.1) (927.0) (701.1) (720.4) (577.7) (560.3) (727.2) Minorities (US$m) (0.2) (4.7) (6.5) (2.8) (14.2) Net cash for Hummingbird shareholders (US$m) (7.5) (66.3) Discount factor timing Discount factor NPV10 (%) (1.8) (58.9) RISK (%) Valuation (US$m) (1.5) (47.1) Valuation ( m)

7 FORECASTS Income statement Year to 31st May (US$m) 2012A 2013A 2014A 2015E 2016E 2017E Revenue Cost of sales (7.3) (53.9) Royalties (0.6) (6.3) Gross margin Corporate overheads (3.1) (2.8) (3.6) (5.0) (3.5) (3.7) Depreciation (1.8) (7.4) Sharebased payments (1.1) (0.7) (0.5) (0.6) (0.5) (0.5) EBIT/(LBIT) (4.3) (3.5) (4.1) (5.6) (2.5) 43.9 Finance income (loss), net (0.4) (0.7) (0.7) (14.0) Profit/(loss) on disposal 0.6 (0.1) Share of joint venture profit (loss) (0.0) (0.2) (0.6) PBT/(LBT) (4.2) (3.4) (4.5) (6.3) (3.2) 29.9 Income tax credit/(expense) (7.9) Profit/(loss) for the year attributable to shareholders (4.2) (3.4) (4.5) (6.3) (3.2) 21.9 Noncontrolling interest Adj. profit/(loss) for the year (4.7) (3.1) (3.8) (6.3) (3.2) 21.9 Basic adj. EPS/(LPS) (c) (8.8) (5.7) (6.5) (7.8) (3.7) 25.2 Diluted adj. EPS/(LPS) (c) (8.8) (5.7) (6.5) (7.8) (3.4) 23.3 Taxation Rate % (18.1) Group Pretax Margin (%) n.a. n.a. n.a. n.a. (97.5) 53.8 Operating Profit (EBIT) Margin (%) NEG NEG NEG NEG (24.0) 40.2 Dividends per share (c) Dividend Cover (x) Number of shares (m) (Ave weighted) Number of shares (m) (Ave weighted fully dil.) EBITDA (US$m) (4.2) (3.3) (4.0) (5.6) (0.7) 51.4 Enterprise Value (US$m) EBITDA Interest Cover (x) 10.2 (10.5) (12.0) (3.7) Depreciation & Amortisation Cash Earnings Per Share (c) (7.8) (6.1) (6.9) (6.9) (0.8) 54.6 Price (c) Price Earnings Ratio (6.6) (10.2) (9.0) (7.5) (16.9) 2.5 Net yield % NAV per share (c) (16.4) 1.0 (4.6) 18.9 EV/EBITDA (4.6) (6.4) (7.3) (12.3) (205.7) 6.5 SOURCE: Northland Capital Partners Limited estimates 7

8 Cash flow Year to 31st May (US$m) 2012A 2013A 2014A 2015E 2016E 2017E PBT/(LBT) (4.2) (3.4) (4.5) (6.3) (3.2) 29.9 Depreciation Share based payments Profit (loss) on disposal (0.6) Net interest 0.4 (0.3) (0.2) Share of joint venture loss Tax paid (7.9) Increase (decrease) in receivables (0.2) Increase (decrease) in trade and payables 0.3 (0.5) 0.5 Increase (decrease) in amounts due to and receivable from joint venture 0.8 (0.7) (0.2) Net cash generated from (used in) operating activities (2.2) (3.8) (3.2) (5.0) (0.2) 43.9 Exploration and evaluation costs (13.4) (12.5) (10.7) (6.0) (2.0) (2.0) Interest received Property, plant and equipment costs (0.6) (0.1) 0.0 (17.5) (71.0) (213.8) Cash in acquired subsidiaries 0.2 Net cash generated from (used in) investing activities (13.8) (12.4) (10.6) (23.3) (72.7) (215.6) Proceeds from issue of shares (net) Proceeds from issue of warrants (net) 0.4 Proceeds from issue of debt (gross) Repayment of debt (15.0) Interest cost (1.0) (0.9) (14.4) Net cash generated from (used in) financing activities Forex (0.7) (0.1) 0.3 Net increase/(decrease) in cash held (16.6) (1.8) (6.7) (6.4) Cash and cash equivalents SOURCE: Northland Capital Partners Limited estimates 8

9 Balance sheet Year to 31st May (US$m) 2012A 2013A 2014A 2015E 2016E 2017E Issued capital Share premium Retained earnings (1.9) (8.2) (11.4) 10.5 Reserves (4.2) (11.4) Provisions 0.7 Anglo Pacific Royalty Minorities Taurus bridge facility 15.0 Taurus debt facility Other debt Current liabilities Capital employed Exploration and evaluation expense Property, plant and equipment Investment in joint venture Trade and other receivables Tax (7.9) Cash and cash equivalents Capital employed Net assets per share net of goodwill & intangibles (c) (16.4) Net assets per share inc. goodwill & intangibles (c) Net cash (debt ) (US$m) (21.9) (95.7) (281.7) Free cash flow per share (c) Gearing (%) (33.7) (154.1) (333.4) Shares in issue (m) Post tax RoCE (%) (0.1) (0.1) (0.1) (0.1) (0.0) 0.4 RoE (%) (0.1) (0.1) (0.1) (0.1) (0.1) 0.3 Shareholders' funds (US$m) Shareholders' funds net of intangibles (US$m) (9.5) SOURCE: Northland Capital Partners Limited estimates 9

10 DISCLOSURES Company Ticker Applicable disclosures Hummingbird Resources HUM.L 1. Northland Capital Partners Limited ( Northland ) acts as Nominated Advisor and/or Broker to the company. 2. Northland) and/or its affiliates companies do beneficially own 1% or more of any class of the issuer s equity securities, as of the end of the month immediately preceding the date of issuance of the research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month. 3. The authoring analyst or any associate of the authoring analyst does maintain a long or short position in any of the issuer s securities directly or through derivatives, including options or futures positions. 4. Northland, its affiliated companies, partners, officers, directors or any authoring analyst of Northland has provided services to the issuer for remuneration during the preceding 12 months other than investment advisory or trading services. 5. Northland or any of its affiliated companies has provided investment banking services for the issuer during the 12 months preceding the date of issuance of the report. 6. A partner, director, officer, employee or agent of Northland or any of its affiliated companies is an officer, director, employee or advisor of the issuer. Disclosures are applicable for all companies 7. The authoring analyst, or any associate of the authoring analyst, has viewed the material operations of the issuer. 8. The authoring analyst, or any associate of the authoring analyst, received reimbursement for travel expenses. 10

11 DISCLAIMER This document is provided solely to enable clients to make their own investment decisions. It may therefore not be suitable for all recipients and does not constitute a personal recommendation to invest. It does not constitute an offer or solicitation to buy or sell securities or instruments of any kind. If you have any doubts about the suitability of this service, you should seek advice from your investment adviser. This document is produced in accordance with UK laws and regulations. It is not intended for any person whose nationality or residential circumstances may render its receipt unlawful. The past is not necessarily a guide to future performance. The value of shares and the income arising from them can fall as well as rise and investors may get back less than they originally invested. The information contained in this document has been obtained from sources which Northland Capital Partners Limited believes to be reliable. The Company does not warrant that such information is accurate or complete. All estimates and prospective figures quoted in this report are forecasts and not guaranteed. Opinions included in this report reflect the Company s judgement at the date of publication and are subject to change without notice. If the investment(s) mentioned in this report are denominated in a currency different from the currency of the country in which the recipient is a resident, the recipient should be aware that fluctuations in exchange rates may have an adverse effect on the value of the investment(s). The listing requirements for securities listed on AIM or ISDX markets are less demanding, also trading in them may be less liquid than main markets. Northland Capital Partners Limited and/or its officers, associated entities or clients may have a position, or other material interest, in any securities mentioned in this report. More information about our management of Conflicts of Interest, Investment Research Methodology & Definition of Recommendations can be found at Northland Capital Partners Limited is authorised and regulated by the Financial Conduct Authority and a Member of the London Stock Exchange. Published by/copyright: Northland Capital Partners Limited, All rights reserved Northland Capital Partners Limited research is available on Bloomberg, Capital IQ, Factset & ThomsonReuters online platforms. Please contact a Northland Capital Partners Limited sales representative for entitlement through these channels 11

12 CONTACTS Research Technology, Media & Telecoms David Johnson +44 (0) Support Services David Johnson +44 (0) Healthcare Vadim Alexandre +44 (0) Oil & Gas Andrew McGeary +44 (0) Coal Mining Andrew McGeary +44 (0) Metals & Mining Ryan Long +44 (0) Consumer Michael Campbell +44 (0) Sales & Broking John Howes +44 (0) Alice Lane +44 (0) Mark Treharne +44 (0) Corporate Finance Patrick Claridge +44 (0) Gerry Beaney +44 (0) David Hignell +44 (0) Edward Hutton +44 (0) Matthew Johnson +44 (0) William Vandyk +44 (0) Northland Capital Partners Ltd research is available on Bloomberg, Capital IQ, FactSet, & ThomsonReuters online platforms. Please contact a Northland Capital Partners Ltd sales representative for entitlement through these channels 12