What the Brokers say

A couple of interesting research reports arrived at The Roadhouse this week.

Here’s some edited highlights.

 

Continental Coal (ASX:CCC)

Continental Coal is an established coal producer with an increasing production profile.

The company is in the advanced stages of development at the 68 million tonne Penumbra mine which should deliver first coal 2H 2012.

The much larger De Wittekans project has potential for plus 30 year mine life at 3.6 million tonnes per annum (Mtpa) Run Of Mine.

The potential acquisition of a 50 per cent interest in a Colombian coking coal asset and the highly prospective Botswana licences provide welcome diversity.

Continental Coal (74 per cent) and its Black Economic Empowerment (BEE) partner (26 per cent) have exposure to a portfolio of coal assets totalling 600 million tonnes of coal resource, located in the highly productive Witbank/Ermelo coal fields of South Africa.

 

Continental Coal – South Africa project locations. Source: Continental Coal

Continental, in its own right, also has exposure to highly prospective tenements in Botswana (two billion tonnes JORC inferred with further four billion tonnes exploration target) and a recently announced option to acquire a 50 per cent interest in a producing coking coal asset in Colombia.

Continental Coal (ASX: CCC), via a 74 per cent interest in its South African subsidiary Continental Coal Limited (CCL), has a portfolio of established producing assets delivering coal into the domestic and more lucrative export market.

The company currently produces approx. 1.8Mtpa saleable from two open cut mines (Vlakvarkfontein and Ferreria) for  approx. 1.2 million tonnes of domestic coal sold at the mine gate and a further +500,000 tonnes per annum of export quality coal, which is sold out of the Richards Bay Coal Terminal.

Continental is currently advancing the Penumbra coal project which hosts approx. 68 million tonnes of export quality thermal coal and is set for first production in 2H 2012.

Total development costs are estimated at approx. US$40 million, which is being funded from existing cash and a debt facility provided by ABSA Capital.

A fourth project, De Wittekrans, hosts a total JORC resource of 250 million tonnes and has potential for a +30 year mine life.

Continental envisages producing 0.8Mtpa (saleable) of export coal and a further 1.7Mtpa of domestic coal for total saleable production of 2.5Mtpa.

Preliminary results from a Bankable Feasibility Study completed in 2011 indicated an economically attractive project with a capex requirement of approx. US$220 million.

Optimisation studies are underway to assess whether existing wash plants and rail sidings can be utilised to (significantly) reduce the initial capex and accelerate first production.

A development decision is expected in 2H 2012 following the results of the optimisation study.

Recommendation: Speculative BUY


 

Blackham Resources (ASX:BLK)

Blackham continues to make steady progress at its flagship Matilda gold project since the acquisition in late 2011.

The project currently hosts +1 million ounce (Moz) of gold with a further 2Moz exploration target.

Now over the 1Moz mark, Blackham has ‘critical mass’ to potentially justify its own processing plant or, if a deal can be reached, toll-treat ore through the nearby Wiluna gold plant.

Blackham has an EV/Resource oz of approx. $10, which appears significantly undervalued relative to its peers.

Blackham Resources recently reached a significant milestone in its aspirations of becoming a self-sufficient gold producer by increasing its Matilda resource to over 1Moz of contained gold at an average grade of 1.8g/t gold.

 

Matilda gold project. Source: Blackham Resources

The resource has increased by 41 per cent since our last update in May 2012, largely as a result of an upgrade to the Regent and M10 deposits, as well as a maiden resource at the M4 deposit.

Additional short term opportunity exists for a further increase with the M1 and M3 prospects currently under assessment.

While the +1Moz mark is significant in giving Blackham ‘critical mass’ to consider building their own processing plant, it is just the beginning in the overall exploration program.

The vast majority the current resource is hosted within 150 metres from surface and significant opportunity exists to extend the resource at depth, as well as along strike at multiple deposits.

The Williamson project area remains the most prospective with a plus 2Moz exploration target.

The under-utilised 1.1Mtpa Wiluna plant, owned and operated by Apex Minerals (ASX:AXM), has two circuits capable of treating both oxide and sulphide ores.

Potential exists for Blackham to initially toll treat oxide ore through the plant, providing Apex with additional revenue and operational efficiencies while providing Blackham with the opportunity for early cash flow to support additional exploration and development costs.

A sizable resource is already in place and there is significant opportunity to increase this still further.

Both the Williamson and Matilda deposits are within granted mining leases and have existing haul roads linking the deposits to the plant.

Accordingly, relatively small capex is required to become operational.

Recommendation: Speculative BUY

 


Northern Star Resources (ASX:NST)

West Australian gold producer Northern Star Resources has reported a strong financial results for FY2012 with a profit before tax (PBT) of $31.4 million (up 57 per cent), for net profit after tax of $21.96 million (up 35 per cent), exceeding our full year net profit forecast of $18.8 million.

Off the back of this financial result and solid cash position (approx. $75 million cash and gold bullion at the end of June), NST declared a maiden fully franked dividend of 2.5 cents per share (dividend yield of 3 per cent).

Northern Star produced 67,206 ounces of gold at cash costs (including royalties) of $713 per ounce for total cash costs of $1,017 per ounce from the Paulsens Operation.

Revenue of $99.4 million was received from gold sales of 61,614 ounces.

The company remains on track to meet CY2012 production guidance of 75,000 to 80,000 ounces at cash costs (including royalties) of $650 per ounceoz from the Paulsens Mine for forecast surplus cash of $35 million.

The Paulsens resource estimate has increased approx. 27 per cent to 403,000 ounces of gold (up from 318,000 ounces) at an overall resource grade of 5.0 grams per tonne gold (up from 4.3g/t gold).

The main Voyager 1 lode has decreased from 161,000 ounces to 123,000 ounces, after mine depletion but the Voyager 1 extension lode has added another 83,000 ounces at an impressive grade of 25g/t gold.

The resource growth and deep drilling results not included in the updated resource estimate, underpins Northern Star’s five year mine life for Paulsens but importantly the Voyager 1 and 2 lodes remain open at depth, providing encouragement to further mine life extensions.

 

Paulsens gold mine. Source: Northern Star Resources

Northern Star’s production guidance for CY2013 is now 100,000 to 115,000 ounces of gold at cash costs (including royalties) of $610 to $690 per ounce for forecast surplus cash of $65million to $85million.

We continue to recommend Northern Star as a Buy, with an updated sum of parts Valuation of $1.05 and 12-month Price Target of $1.19.

Recommendation: Buy