What the Brokers say

THE BOURSE WHISPERER: Every now and then The Roadhouse obtains research notes from different broking establishments. Here’s a few that hit our inbox this week.


Blackham Resources

Recently acquired the Matilda gold project located in the Wiluna region of W.A. The projects assets include previously operating mines, some infrastructure and a JORC resource of 12.5 million tonnes at 1.9 grams per tonne gold for 757,000oz of gold, made up from four nearby deposits.

Blackham has a near term exploration target of plus 1Moz gold with significant exploration potential at depth and along strike of the existing deposits.

A recent 4,000m RC drill campaign confirmed the prospectivity of the targets by intersecting wide zones of ‘ore grade’ mineralisation. Further opportunity exists to identify additional deposits hosted along 40km of strike over the Wiluna Mine Sequence and 10km strike along the Coles Find Mine Sequence.

The Wiluna plant, owned and operated by Apex Minerals, is located in close proximity to the Matilda project and has both oxide and sulphide treatment circuits. Potential exists to toll treat oxide ore through the plant providing Apex with additional revenue and operational efficiencies (as the plant is underutilised) while Blackham has the opportunity for early cash flow to fund additional exploration and development costs.

Blackham is also evaluating the potential of coal export and a Coal to Liquids facility to process lignite from the 1.4 billion tonnes Scaddan and Zanthus deposits located near the port of Esperance. The project is well serviced by infrastructure and may warrant a standalone mining operation for the export market should an appropriate lignite market be identified.

Recommendation: Speculative Buy


Tiger Resources

Tiger Resources is a copper producer with high-quality assets in the Katanga copper belt of the Democratic Republic of Congo.

It can add significant value in the near term by increasing copper production to plus 50,000 tonne per annum and by potentially buying out its 40 per cent JV partner. Katanga Province is currently a focus of corporate activity, so M&A potential is considerable.

Key Points:

–    Copper producer: Kipoi project (DRC) output is 35ktpa of copper in concentrate  with offtake by Trafigura at the mine gate.

–    Low operating cost: Stage 1 opex target $0.42 per pound copper with open pit mining of oxide and concentration by Heavy Media Separation (HMS).

–    Plans to expand production: DFS expected late 2012 for 50ktpa copper cathode (up to 100ktpa) by solvent extraction and electrowinning (SX-EW).

–    Strong forecast EBITDA: CY2013e is US$106m (P/E 1.9) based on current operation; CY2014e is $196m (P/E 1.4) after SX-EW expansion.

–    Potential to add value by acquiring remaining 40 per cent project share held by JV partner, Gécamines (DRC miner).

–    A likely takeover target: Katanga copper belt is a focus of M&A activity by majors (e.g. Minmetals/Anvil – C$1.3bn; Jinchuan/Metorex – US$1.4bn).

Our 12-month target for the stock is $0.85, based on current 35ktpa copper HMS production and a plus $150 million expansion to 50ktpa copper by SX-EW. This could increase to $1.18 if Tiger acquires the 40 per cent of Kipoi held by Gécamines.

The DRC is a challenging place to work but in our view, operational risks are outweighed by the quality of the Kipoi asset, the potential for plus 50ktpa copper production, and the possibility of corporate action.
An approximate 1 per cent sell-down by shareholder Fidelity from Nov 11 to Apr 12 affected the share price, which has now started to recover.

 Recommendation: Buy



Altona Mining

AOH has successfully made the transition from developer to producer at the Outokumpu project and will produce 8,000 tonnes per annum copper, 8.4k ounces per annum gold and 1.6ktpa zinc (approx. 10ktpa copper equivalent) in concentrate for approximately 9yrs at the Kylylahti underground mine via conventional flotation at the 550ktpa Luikonlahti plant.

Cash costs will average US$1.38 per pound (FSBe) which will result in operating cashflow of approx. $50m p.a. to be re-invested back into exploration at both Finland and Queensland. We also highlight the potential upside at Outokumpu with the plant fully permitted and capable of being increased to 750ktpa (to deliver approx. 15ktpa copper equivalent) for capex of $8m.

Roseby to be a large scale operation: The recently released DFS has outlined economics based on a large tonnage (7Mtpa), low grade (0.6 per cent copper) operation with ore sourced predominantly from the Little Eva open pit.

Cash costs of US$1.73/lb (previous FSBe US$1.40/lb) and capex of $320m (previous FSBe $250m) are both higher than what we had previously modelled however the project remains robust based upon our long term copper price forecast of US$2.75/lb, delivering annual average EBITDA of approx. $120m (FSBe).

We reiterate our BUY recommendation and have reduced our price target to $0.60/sh (from $0.80/sh) following a refinement to our modelling.

Recommendation: Buy