What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Elysium Resources Limited (ASX: EYM)
Elysium Resources is an Australian mineral exploration company whose core business is exploring for large, high-quality copper and gold deposits in the rich mineral provinces of Australia and Indonesia.
The current Board of Directors was appointed in February 2013. An immediate review of the company’s existing assets was conducted with a view to establishing an updated strategy. The company changed its name from United Orogen Limited (ASX: UOG) on 8 July 2013.
On 30 August 2013, Elysium announced an off-market takeover offer for all shares and options in Burraga Copper Limited (BCU), an unlisted Australian public company, for a consideration of 6.5 EYM shares for every BCU share held and 1 EYM share for every BCU option held.
The acquisition of BCU provides Elysium with the potential for early cash flow from BCU’s Lloyds copper project in NSW. This cash flow would be used to finance Elysium’s exploration programs in the Lachlan Fold Belt of NSW, Redmond and Horseshoe South in Western Australia and Malang in Indonesia
Potential Early Cash Flow
Unlike many of the junior explorers at very early stages of exploration, Elysium has identified a potential source of early cash flow generation.
The Lloyds copper project is small, but in its favour are low capital and operating cost estimates.
In particular, the very modest upfront capital cost estimate of $10.3 million is not disproportionate to current market capitalisation of the company.
Tailings/Slag Re-Treatment Followed by Open Pit Mining
The presence of a small copper tailings dump and two slag heaps at Lloyds provides early, readily accessible feed for a proposed 300,000 tonnes per annum plant which, together with the subsequent treatment of hard rock open pit ore, is expected to produce up to 11,000 tonnes of copper in concentrate (plus gold and silver by-product) over a 4-5 year period.
In addition to the very modest capital cost, the PFS indicated average cash costs (excluding any by-products) of less than A$1.40 per pound of copper in concentrate, providing a substantial operating margin.
Pre-Feasibility Study Indicates a Robust Project
The pre-feasibility study conducted in 2011 established that the Lloyds copper project was economically viable based on prevailing metal prices at the time: A$10,000/t of copper, A$1,500/oz of gold and A$30/oz of silver.
The bulk of the revenue (~87 per cent) is derived from copper, with some gold and silver by-product.
Based on these prices, annual cash flows (after capital expenditure) range from $15.9 million to $22.1 million for the first four years.
At a 10 per cent discount rate (pre-tax), the Net Present Value (NPV) of the project is $53.2 million, with undiscounted net cash flow (pre-tax) of $76.7 million.
Project Cash Flow Still Positive at Current Metal Prices
At current metal prices and exchange rates (A$7,620/t for copper, A$1,346/oz for gold and A$21.64/oz for silver at an A$/US$ exchange rate of 0.923), the annual cash flows are reduced to between $10.3 million and $14.8 million over the first four years.
The NPV, at a 10 per cent discount rate, is reduced to approximately $31 million.
Provided the technical parameters and cost estimates can be achieved, the project will still produce healthy cash flows at current metal prices.
Project Risk
Breakaway sees the main risks to the project as metallurgical. With short treatment campaigns for tailings and slag, there is little time to make plant adjustments to achieve optimum recoveries and concentrate quality.
This could have an adverse impact on cash flows as well as putting pressure on working capital requirements.
The PFS is based on open pit hard rock ore grading 1 per cent copper. The currently reported global Inferred resource has a grade of only 0.5 per cent copper.
However, the grade/tonnage curve indicates that at a higher cut-off grade there is a component of around one million tonnes at 1 per cent copper equivalent – consistent with the assumption in the PFS.
Cash Flow to Fund Exploration
The cash flow generated should provide funds to carry out exploration, particularly on the NSW tenements.
First priority would be establishing additional feed for the mill. The tenements are also prospective for Lucky Draw-type gold deposits.
However, the ultimate prize would be the discovery of a large copper or copper gold deposit similar to the McPhilamys deposit only 50 kilometres to the north.
Early cash flow would also help to fund the greenfields exploration program in Indonesia, which although still at a very early stage, has the potential to deliver very large copper-gold deposits.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.