What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Bathurst Resources New Zealand Ltd. (ASX: BRL)
No more appeals – Path almost cleared to move into construction
Our view:
In a positive update, Bathurst has announced that the appeals period against the Environmental Court decision to award the resource consent for the Escarpment mine has lapsed.
This moves Bathurst one step closer to production.
Key points:
Following the decision of the Environmental Court to grant the resource consent for the Escarpment mine on the 24th of October, there was a window available for lodging appeals.
That window closed on Monday with no appeals.
This announcement follows the news last week that an agreement had been reached with the Royal Forest and Bird Protection Society such that it would not appeal.
This agreement significantly reduced the likelihood of any appeal as it was the most frequent appellant; nevertheless the news that no other party has appealed is positive.
We have reviewed our numbers, bringing forward production and lowering capex in line with more recent targets.
One step closer to construction:
Bathurst still requires approval of 25 management plans from local council, iwi, and the Department of Conservation.
These will allow for site access and for Bathurst to operate on the site.
Bathurst expects these plans to be signed off by mid-January 2014, allowing for first coal from Q1 as part of development. First steady state sales are expected in June.
While we acknowledge this final step should be much more straightforward than the court processes Bathurst has been embroiled in (there is significant local support and the resource consent has been granted), given the project’s history, we do not discount the possibility for delays.
Bringing production forward:
With appeals no longer possible we have adjusted our modelling to incorporate first sales from the June quarter vs. our prior assumption of the December quarter 2014.
We have also revised our capex to reflect the lower cost options now identified by Bathurst.
Funding:
With NZ$19 million cash on hand and very little capex prior to first coal (less than $10 million), Bathurst is funded into production.
However, we do not expect Bathurst to be free cash positive until 2016. In order to fund the remaining development capex to lift Escarpment to 0.9 million tonnes per annum we assume $100 million debt financing.
We estimate Bathurst can fund Wharatea West from cash flow.
With a major roadblock now passed, the path to production is becoming clearer for Bathurst. We see strong valuation support for the stock, and expect the transition into construction to see it supported.
Sandfire Resources (ASX: SFR)
DeGrussa de-risking, SFR still exploring
Bell Potter analysts recently attended a site trip to Sandfire’s DeGrussa mine and came home with the following update.
The key value drivers for Sandfire are the successful ramp-up of DeGrussa, and exploration success which can either extend the project’s life (currently around 7 years) or increase its scale.
We have returned more confident on the ramp-up, with copper recoveries improving, the mine operating at design 1.5 million tonnes per annum rates and issues with the paste fill plant being resolved.
However, there is yet to be any major success on the exploration front.
Recoveries improving to design 92 per cent rates
We are now more confident that Sandfire can achieve design recovery rates of 92 per cent at DeGrussa.
Sandfire only begun optimising the plant since late September 2013, when the plant switched to full underground ore feed.
Since then, there has been a marked improvement in recoveries, averaging 88 per cent in October, and 91 per cent in November to date.
We are confident that through optimising plant processes, ore grind size and the suite of reagents, Sandfire will be able to at least achieve design recovery rates.
Underground mining at 1.5Mtpa rates achieved
We are also more confident that SFR can sustainably mine at design underground rates of 1.5 million tonnes per annum, as achieved in October 2013.
There are risks around this target, with underground stoping, the paste fill plant and the mill all required to work in concert.
However, underground development is well ahead of mining, removing potential bottlenecks.
The paste plant has recently undergone upgrades and is operating well.
Investment thesis
The DeGrussa project is yet to reach sustainable steady-state production and ramp-up risks do remain.
However, the project is being progressively de-risked as underground mining rates improve and ore/mill performances are better understood.
We expect the high grade (low cost) DeGrussa project to deliver strong free cash flow in FY14-15, despite relatively high underground development capital costs over that period.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.