What the Brokers say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Altona Mining Ltd (ASX: AOH)
Outokumpu performing well, Roseby development-ready but requires finance
Outokumpu copper project (Finland):
– Record quarter of production, exceeding feasibility design.
– Plant throughput of approx. 144,000 tonnes (FSBe 138kt) represents 104 per cent of nameplate (550kt per annum).
– Copper recovery was 91 per cent (FSBe 91 per cent) with concentrate grade of 21 per cent (FSBe 21 per cent). Milled copper grade was 1.6 per cent versus our estimate of 1.25 per cent copper.
– Production for the quarter totalled 2kt tonnes of copper (FSBe 1.6kt), 2.3koz goldu (FSBe 2koz) and 444t zinc (FSBe 400kt).
– Copper production increased almost 30 per cent on the September quarter and was 25 per cent above our estimates, which was predominantly a function of grade (1.6 per cent v 1.3 per cent) and throughput.
– Cash costs of US$1.61 per pound for the quarter were in line with FSBe of US$1.60 per pound.
– Outokumpu is now operating at an annualised run rate of approx. 8ktpa copper, approx. 9.2kozpa gold and 1.8ktpa zinc. Management have provided updated guidance for FY13 of 6.5 to 7.0kt copper and 6.5 to 7.0koz gold at cash costs of US$1.40 per pound to US$1.60 per pound.
Roseby copper project (Queensland):
– Xstrata notified Altona that it will not exercise its option to acquire a 51 per cent interest in the majority of the tenements which comprise the Roseby copper project.
– The project is now fully permitted following the granting of three mining licences during the quarter.
Altona’s position is $19 million and the Credit Suisse debt facility of US$20 million has been fully drawn down.
Outokumpu exceeding expectations: We are impressed by management’s performance and delivery at Outokumpu to date, having steadily increased output since commissioning the Luikonlahti mill in early 2012 to now be producing at an annualised rate of approx. 8ktpa copper.
FY13 guidance has been lifted to 6.5 to 7.50 tonnes copper (FSBe 7.0kt copper) and, at forecast cash costs of approx. US$1.60 per pound, the operation should be generating approx. $30 million EBITDA per annum moving forward.
Management have also commenced studies to investigate the potential to expand output by 30 to 50 per cent, with results expected mid-2013.
Xstrata overhang now removed, JV or ‘go it alone’ scenario most likely development pathway for Roseby: Following Xstrata’s advice to Altona that it will not be exercising the option on Roseby, the company is now in a position to actively pursue a development pathway for the asset.
A number of development scenarios are being considered including a JV/asset sale with another corporate/strategic or a ‘go it alone’ scenario potentially based on a smaller scale or staged operation (and in turn refined/manageable capex).
With the copper price remaining strong and financing expected to be more readily available for projects of decent scale in 2013, we believe it is may be feasible for Altona to seek to raise finance (debt/offtake/equity) and retain majority exposure to the project.
A DFS was completed for Roseby in 2012 and highlighted a NPV of approx. $250 million based upon an approx. 39ktpa copper and approx. 17kozpa gold operation with capex of approx. $320 million and cash costs of US$1.73 per pound.
RECOMMENDATION: We retain our BUY recommendation and price target of 45 cents per share.
Image Resources (ASX: IMA)
Image Resources (ASX: IMA) is now advancing towards development of its high-grade mineral sand assets delineated within the North Perth Basin in Western Australia.
A resource upgrade at the key Boonanarring deposit (due in Feb 2013) is likely to further enhance the already robust economics outlined in the scoping study.
Image has now embarked on a ‘bankable’ feasibility study with first production targeted for late 2014.
After five years of exploration, Image Resources has now created a significant portfolio of high grade mineral sands projects within the North Perth Basin.
Following the successful outcomes of a scoping study completed in 2011, the company is now implementing a clear strategy to develop these assets with first production from the Boonanarring deposit possible by early 2015.
The recent $6.7 million capital raising (subject to shareholder approval) will be more than adequate to complete the necessary technical studies (as part of a broader feasibility study), the planned resource expansion drilling campaigns at Boonanarring and all company operating costs through to July 2013.
Initially, Image envisage construction of a 3.3 million tonnes per annum single mine and wet plant operation at Boonanarring.
This initial, relatively low capital cost project should then provide the operating platform and cash flow for the staged development of parallel mining operations at Atlas and the other projects, together with the construction of a more capital intensive Dry Mill, capable of producing finished products.
This strategy is not only attractive in terms of project economics, but will provide a quicker path to production at lower risk, with a significantly lower up-front capital requirement than would be the case if a Dry Mill is constructed initially.
North Perth Basin project
Image has a major land holding in the North Perth Basin (NPB) which comprises of a total JORC resource of 289 million tonnes at 2.9 per cent heavy minerals (HM) (for approx. 8.4 million tonnes of valuable Heavy Minerals).
Within this resource, the company has identified a ‘high-grade’ resource made up from seven nearby deposits which host a total of 52.9 million tonnes at 6.6 per cent HM for approx. 3.5 million tonnes of Heavy Minerals with over 90 per cent of the resource in the Measured and Indicated categories.
The seven North Perth Basin projects are:
Boonanarring (existing ML on part of the prospect) – First to be mined;
Atlas and Atlas South (MLA on part of prospect) – Second to be mined;
Hyperion;
Helene;
Red Gully (existing ML);
Gingin North (existing ML); and
Gingin South (existing ML on part of the prospect).
Recommendation: Speculative BUY
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice.