What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Evolution Mining Limited (ASX: EVN)
Evolution Mining released its FY2013 Financial Results, which were broadly in-line with our expectations. But more importantly Jake Klein and his team delivered yet again. This time it was on the previously announced dividend policy, despite a large impairment charge wiping out available retained earnings. We believe that EVN is in a good position to build on the productivity and efficiency initiatives implemented and deliver a positive free cash flow in FY2014.
Impairment
The full year review of the company’s asset carrying values, in the context of a lower gold price environment and other factors, resulted in an impairment loss of $384 million across EVN’s asset base.
Maiden dividend
Due to impairment losses, EVN had no available reserves or earnings from which to distribute a dividend payment.
However, EVN will pay an unfranked dividend of one cent per share out of 2014 financial year profits. Our modelling suggests there will be sufficient earnings in FY2014 for the dividend and for EVN to continue paying dividends in FY2014 based on 2 per cent of EVN’s sales of gold and silver, payable in cash.
Underlying Estimates
EBITDA of $211.7 million and net profit of $44.4 million were below the PSL estimates of $241 million and $96 million respectively. This is mainly explained by a $19.8 million inventory charge due to a reduction in Net Realisable Value of $311 per ounce on low-grade stockpiles and the $15 million amortisation of costs associated with the Venue Open pit at Pajingo, which is now closed. We note that 90 per cent of the inventory charge will been reversed at the current spot price of $1,570 per ounce.
Looking forward
EVN has gone past the peak in its capital expenditure program and it is looking to generate sufficient cash from all operations (based on a spot gold price assumption of $1,400 per ounce) next year to cover all capital, exploration and corporate expenditure, including interest and dividend payments.
Global Strategic Metals (ASX: GSZ)
Investment Case
This is an opportunity to invest in Europe’s first primary lithium mine. Europe consumes approximately 24 per cent of lithium produced globally but does not currently produce any.
With a growing demand for this high tech metal and a mine which is partially developed and is kept in survey, we see Global Strategic Metals as an ideal opportunity to gain an exposure to one of the highest grade hard rock lithium mines in the world.
Once the mine has been successfully established we expect that downstream processing will commence with the establishing of an integrated lithium carbonate plant in Wolfsberg.
Potential to Expand Ore Resources
The Zone 1 ore bodies are open both along strike and down dip, whilst Zone 2 has the potential to significantly increase the resource. Some of the funds being raised are to be allocated to drilling to further define the extent of the Zone 1 ore bodies so that the size of the mine and processing plant can be determined.
Highly Sensitive to the Lithium and Feldspar Price
The expected profitability of the proposed mine and processing plant are very sensitive to both the spodumene concentrate (lithium) and feldspar prices. The operation is also expected to produce silica, quartz and road base material, all of which are expected to be sold in Europe. The potential sales of these minerals have been excluded from the base case net present value.
Excellent Location
The ore body is located just outside Wolfsburg in politically stable Austria. The local infrastructure is excellent, with good road and rail connections and a main European trunk gas pipeline passing through the town.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.