emmerson resources limited (erm) - hartleys · monetising gold deposits which are not expected to...

of 7

Emmerson Resources Limited (ERM)

Gold

: E

xp

lore

r

ERM.asxSpeculative Buy

$0.19

Brief Business Description:

Hartleys Brief Investment Conclusion

Chairman & MD

Top Shareholders

Evolution Mining 13.0%

Noontide Investments 10.4%

Directors 2.0%

Company Address

Issued Capital 379.4m

- fully diluted 385.9m

Market Cap

- diluted

Cash - est $4.4m

Debt $0.0m

EV

EV/Resource Oz (AuEq) $33.1/oz

TCMF Resource (Moz AuEq) 0.900

Author:

Mike Millikan

Resources Analyst

Ph: +61 8 9268 2805

E: [email protected]

Hartleys has provided corporate advice w ithin the

past 12 months and continues to provide corporate

advice to Emmerson Resources Limited, for w hich it

w ill earn fees. See back page for full disclosure.

$34.1m

$29.8m

Share Price (last): $0.090

Gold, copper focused junior explorer

Targeting new high-grade gold-copper

discoveries at Tennant Creek. Strategic

partner (EVN) earning interest through

funding exploration. Also has exploration

assets in NSW.

Andrew McIlwain (Non-Exec Chairman)

Price Target - 12 months:

$34.7m

23 May 2017

Rob Bills (MD & CEO)

3 Kimberley Street

West Leederville WA 6007

EMMERSON RESOURCES LIMITED (ERM)

Near-term production from small mines strategy Emmerson Resources (ERM) has a strategy to commercialise its portfolio of

small, high-grade gold deposits throughout the Tennant Creek region, with

near-term production anticipated from Edna Beryl.

ERM’s small mines strategy commenced in 2015, with a small confined area

at Edna Beryl to be mined under a tribute agreement with an underground

contract miner. Underground development drives are in place at Edna Beryl,

but the mine management plan still awaiting for NT Mines Department

approval. Visible gold has been intersected within the development drives on

two levels, which should bode well for production once it commences.

The tribute mining strategy appears to be a sensible approach for ERM,

monetising gold deposits which are not expected to the production scale for

JV partner Evolution Mining (EVN) and in the process providing a risk free

return of up to 17% of the net profits generated from each mining venture.

Edna Beryl provides the template for other small deposits (Black Snake,

Malbec and Chariot) within the portfolio, with Black Snake expected to be the

next small mine (after Edna Beryl). Black Snake has potential to host 7,000-

10,000oz of gold with some historical grades over 60g/t Au in parts.

Chariot is likely to offer significantly more ounces, with a current resource

base of ~99koz grading 17.5g/t Au, but we envisage more drilling and studies

will be required to mitigate some risks. Pleasingly the NT government is also

looking to reinvest in Tennant Creek area, and recently released a preliminary

investigation into setting up a mining services centre for the region to promote

exploration and mining, for jobs creation and potential royalties.

Tennant Creek exploration drilling about to recommence ERM’s JV partner EVN continues to sole fund exploration and has just under

A$3M of the initial A$15M to spend by 31 Dec’17 to earn a 65% interest in the

Tennant Creek Project. EVN also has an option to spend another A$10M over

2 years to earn a further 10% interest with ERM retaining a 25% interest.

Recent exploration has involved the completion of high-resolution gravity

survey and trial of a passive seismic survey over Enda Beryl. The gravity

surveys aims to identify the multiple ironstone hosts for high-grade gold

mineralisation, whereas the seismic survey will be used to define the base of

cover sequence. We anticipate Edna Beryl “look-a-like targets” to be

generated, adding the growing list of priority targets to drill-test. The Edna

Beryl mineralised system is characterised by a series of parallel gold-bearing

ironstones contained within a steeply dipping shear zone, the system remains

open in all directions. Additional drilling at Edna Beryl (outside the constrained

small mines area) is expected to commence soon, testing for extensions to

the high-grade zones delineated in late CY16 activities.

Emerging high-grade discoveries; Speculative Buy We maintain our Speculative Buy recommendation with a price target of

19cps. ERM retains a healthy cash position (~A$4.4m), while exploration in

the Tennant Creek field is fully-funded by JV partner EVN. Edna Beryl has

emerged as a significant high-grade gold discovery with more work to come.

ERM expects to complete drilling at the Kadungle Project in NSW this quarter

(JunQ), and has an option to earn an 80% interest in the project through

staged expenditure (A$500k over 5 years). The project is considered

prospective for epithermal gold and porphyry copper-gold mineralisation.

Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000

Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the

firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single

factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys

website www.hartleys.com.au

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.20

.

5.

10.

15.

20.

25.

30.

35.

40.

45.

May-17Jan-17Sep-16Jun-16

Volume - RHS

ERM Shareprice - LHS

Sector (S&P/ASX SMALL RESOURCES) - LHS

A$ M

Emmerson Resources

Source: IRESS

http://www.hartleys.com.au/

Hartleys Limited Emmerson Resources Ltd (ERM) 23 May 2017

of 7

SUMMARY MODEL

Emmerson Resources Limited Share Price May-17

ERM $0.090 Speculative Buy

Directors Company Details

Share Price $0.090 Andrew McIlwain (Non-Exec Chairman) 3 Kimberley Street

Market Capitalisation $34.1m Rob Bills (MD & CEO) West Leederville WA 6007

Net Cash (debt) $4.4m Dr Allan Trench (Non-Exec Director) +61 8 9381 7838

Issued Capital 379.4m

Issued Capital (fully diluted ITM options) 385.9m

Options 6.5m www.emmersonresources.com.au

Issued Capital (fully diluted all options) 385.9m

EV $29.8m Top Shareholders m shs %

12Mth Price Target $0.19 Evolution Mining 49.1 13.0%

Noontide Investments 39.4 10.4%

Projects Interest Location Directors 7.6 2.0%

Tennant Creek 100%* NT

Rover Project 0%** NT

100% NSW

Kadungle 0%*** NSW Actively exploring in the Tennant Creek Mineral Field, NT

Multiple drill-ready targets providing strong newsflow and

potential for discovery. Strategic partner (EVN) funding exploration.

Drilling ongoing.

Resources Mt Metal Newsflow Project

Au g/t Cu % Koz AuEq

Gecko 1.48 0.0 2.5 200 Q1/Q2 CY17 Target generation, exploration planning Tennant Crk

Orlando 2.22 1.8 1.4 300 Q1 CY17 Gravity, seismic surveys Tennant Crk

Goanna 2.92 0.2 1.8 300 Q2 CY17 Follow-up drilling - Edna Beryl Tennant Crk

Chariot 0.17 17.4 0.0 99 Q3/Q4 CY17 Other target testing Tennant Crk

Total 6.79 1.1 1.8 900

Copper 6.79 1.8 % Cu

Gold 6.79 1.1g/t Au

P&L FY2016F FY2017F FY2018F Unpaid Capital No (m) $ (m) Ave Pr % Ord

Net Revenue na na na Performance Rights

Total Costs na na na 30-Jun-17 0.000 0.00 0.00 0%

EBITDA na na na 30-Jun-18 6.500 0.32 0.049 2%

Deprec/Amort na na na 6.500 0.32 0.049 2%

EBIT na na na

Net Interest na na na

Pre-Tax Profit na na na

Tax Expense na na na

NPAT loss loss loss

Abnormal Items na na na

Reported Profit loss loss loss

Analyst: Mike Millikan

Phone: +61 8 9268 2805

Sources: IRESS, Company Information, Hartleys Research

**ERM earning an initial 80% through A$0.5M spend over 5yrs

**ERM earning an initial 51% through A$2M spend over 3yrs

Key Market Information

Commodity

Investment Summary

*EVN earning an initial 65% through $15M spend over 3yrs

Au, Cu

Au, Cu

NSW Projects Au, Cu

Au, Cu

Exploration company progressing into development. Leveraged to exploration

success/improved market sentiment.

Last Updated: 23/05/2017

Grade

122Kt Cu

Comments

246Koz Au


of 7

Fig. 1: Tennant Creek Project Location and Tenure

Source: Emmerson Resources Limited

Fig. 2: Long Section: Edna Beryl System with recent drill ing


Ongoing exploration

within one of the

highest grade

goldf ie lds in

Austral ia

TCMF deposits

generally have

smal l footpr ints but

are very h igh-grade

= high margin mines

The histor ical Edna

Beryl mine was f irst

discovered in the

mid-1930s and

mined via

underground

methods in the

1940s and ‘50s

The reported mine

grade at the t ime

was an impress ive

53g/t Au

The Edna Beryl

Mine (East) is in the

process of being

developed for small -

scale underground

mining under a

tr ibute agreement

(see tr ibute area

marked yellow)

Current exploration


of 7

Fig. 3: Edna Beryl – high resolution gravity image


Fig. 4: Cross Section: Black Snake – BSRC017


New high-resolution

gravi ty survey

completed over Edna

Beryl has generated

new targets (potential

lookalike targets to

Enda Beryl)

Some of these targets

have had no previous

dri l l ing

Historical dr i l l

highlights from Black

Snake includes: 14m

@ 60.9g/t Au from

15m, 11m @ 21.1g/t

Au from 28m, and 7m

@ 21.7g/t Au from

26m

Black snake could

host 7,000-10,000oz

of gold – l ike ly to be

mined via a similar

tr ibute agreement to

Edna Beryl


of 7

PRICE TARGET Our ERM price target is considered highly speculative.

The Tennant Creek Mineral Field (TCMF) remains one of the highest grade goldfields

in Australia. ERM and its JV partner EVN continue to apply new innovative exploration

techniques and technologies to make new discoveries within the field (as highlighted

by Goanna, Mauretania and recently Edna Beryl discoveries).

ERM has a current 100% interest in the Tennant Creek project area, but EVN is

expected to move an initial 65% interest before the end of the year (CY17), through

sole funding exploration up to A$15M (A$3M left to spend). EVN also has an option to

spend another A$10M over 2 years to earn a further 10% interest with ERM retaining

a 25% interest.

Mineralisation with the TCMF occurs in small-to-medium sized lenses within sheared

ironstones (some of which are non-magnetic). The high-grade nature of the field is

highlighted by some of the historic deposits averaging LOM grades of 15-20g/t gold

and 2-4% copper in parts. Exploration continues to target areas of cover. Drilling is

about to recommence, currently focused on the delineation of Enda Beryl as well as

testing “look-a-like” Edna Beryl targets identified from a new high resolution gravity

survey.

Our latest price target of 19cps is derived from both a discounted cashflow analysis of

a small-scale gold operation at Tennant Creek and perception of exploration value in

the search of other gold and copper deposits (which we regard as high).

Fig. 1: Hartleys ERM Price Target

Source: Hartleys Research

Price Target Methodology Weighting 23/05/2017 12 Month

15% $0.26 $0.27

35% $0.18 $0.19

20% $0.17 $0.18

25% $0.16 $0.17

5% $0.01 $0.01

Risk weighted composite $0.18

12 Months Price Target $0.19

Shareprice - Last $0.090

12 mth total return (% to 12mth target + dividend) 108%

Tennant Creek - 100% small scale production + other asset value



Exploration value - no development

Cash Backing

Our ERM price target

is considered highly

speculative

ERM has current cash

of ~A$4.4M, but

Tennant Creek

explorat ion is ful ly

funded by earn-in

partner EVN

Prospectivity remains

high

Latest pr ice target of

19cps


of 7

KEY RISKS Key risks for Emmerson include expanding its resource base (extensions and/or new

discoveries for critical mass), commencing and progressing development studies, and

potential development funding. Weather, land access, drill rig availability, retaining key

people are all risks.

Fig. 2: Key Risks

Assumption Risk of not realising

assumption

Downside risk to share price if assumption is

incorrect Comment

Evolution farm-in continues Low Med-High EVN had to spend a minimum of A$7.5M on exploration before it could terminate the farm-in (spend to date is now +$12M). Some downside

risk to share price if the farm-in is terminated, with ERM then needed to fund exploration

Funding for ongoing exploration

Low

Low-Med

ERM has a cash position of ~$4.4M. The EVN JV deal means the Company has no exploration

funding requirement in Tennant Creek for 3 years (EVN spending +$5Mpa). ERM operates under a

reduced cost base with salary cuts, staff secondments, renegotiated contracts and reduced tenement costs. The Company has a number of

options to raise additional funds in the future, if so required.

Preliminary ERM price target

Med Meaningful We have made a number of large assumptions in our ERM preliminary valuation, based on incomplete information (ie no reserves or

development studies). ERM has no production history but JV partner EVN is a mid-tier gold

producer. Any changes to our assumptions have both upside and downside risks.

Growing resources

Low

Med

We expect that ERM will continue to grow its resource base. Many deposits remain open (along strike) and at depth and additional prospects are being evaluated, which bodes well for resource

additions.

Feasible project development

Med High The Company owns milling infrastructure which reduces the production barrier but funding will be needed for refurbishment and the addition of a copper circuit. In the current market conditions

some uncertainty around funding is apparent. New strategic partner (EVN) mitigates some of these

risks.

Commodity prices Med

Med-High

The project remains highly sensitive to commodity price movements and sentiment. The Company’s

exploration focus is gold and copper and the mineral field in which ERM operates has

historically been very high-grade, which mitigates some of this risk.

Conclusion At this stage we consider the assumptions to have a low to med risk of not being achieved. Our valuation and price target methodology is highly speculative.

Source: Hartleys Research

of 7

HARTLEYS CORPORATE DIRECTORY Research Trent Barnett Head of Research +61 8 9268 3052

Mike Millikan Resources Analyst +61 8 9268 2805

John Macdonald Resources Analyst +61 8 9268 3020

Paul Howard Resources Analyst +61 8 9268 3045

Aiden Bradley Research Analyst +61 8 9268 2876

Michael Scantlebury Junior Analyst +61 8 9268 2837

Janine Bell Research Assistant +61 8 9268 2831

Corporate Finance Dale Bryan Director & Head of

Corp Fin.

+61 8 9268 2829

Richard Simpson Director +61 8 9268 2824

Ben Crossing Director +61 8 9268 3047

Ben Wale Associate Director +61 8 9268 3055

Stephen Kite Associate Director +61 8 9268 3050

Scott Weir Associate Director +61 8 9268 2821

Scott Stephens Associate Director +61 8 9268 2819

Rhys Simpson Manager +61 8 9268 2851

Registered Office

Level 6, 141 St Georges TcePostal Address:

PerthWA 6000 GPO Box 2777

Australia Perth WA 6001

PH:+61 8 9268 2888 FX: +61 8 9268 2800

www.hartleys.com.au [email protected]

Note: personal email addresses of company employees are

structured in the following

manner:[email protected]

Hartleys Recommendation Categories

Buy Share price appreciation anticipated.

Accumulate Share price appreciation anticipated but the risk/reward is

not as attractive as a “Buy”. Alternatively, for the share

price to rise it may be contingent on the outcome of an

uncertain or distant event. Analyst will often indicate a

price level at which it may become a “Buy”.

Neutral Take no action. Upside & downside risk/reward is evenly

balanced.

Reduce /

Take profits

It is anticipated to be unlikely that there will be gains over

the investment time horizon but there is a possibility of

some price weakness over that period.

Sell Significant price depreciation anticipated.

No Rating No recommendation.

Speculative

Buy

Share price could be volatile. While it is anticipated that,

on a risk/reward basis, an investment is attractive, there

is at least one identifiable risk that has a meaningful

possibility of occurring, which, if it did occur, could lead to

significant share price reduction. Consequently, the

investment is considered high risk.

Institutional Sales Carrick Ryan +61 8 9268 2864

Justin Stewart +61 8 9268 3062

Simon van den Berg +61 8 9268 2867

Chris Chong +61 8 9268 2817

Digby Gilmour +61 8 9268 2814

Tia Hall +61 8 9268 3053

Wealth Management Nicola Bond +61 8 9268 2840

Bradley Booth +61 8 9268 2873

Adrian Brant +61 8 9268 3065

Nathan Bray +61 8 9268 2874

Sven Burrell +61 8 9268 2847

Simon Casey +61 8 9268 2875

Tony Chien +61 8 9268 2850

Tim Cottee +61 8 9268 3064

David Cross +61 8 9268 2860

Nicholas Draper +61 8 9268 2883

John Featherby +61 8 9268 2811

Ben Fleay +61 8 9268 2844

James Gatti +61 8 9268 3025

John Goodlad +61 8 9268 2890

Andrew Gribble +61 8 9268 2842

David Hainsworth +61 8 9268 3040

Rebecca Hardy +61 8 9268 2841

Neil Inglis +61 8 9268 2894

Murray Jacob +61 8 9268 2892

Gavin Lehmann +61 8 9268 2895

Shane Lehmann +61 8 9268 2897

Steven Loxley +61 8 9268 2857

Andrew Macnaughtan +61 8 9268 2898

Scott Metcalf +61 8 9268 2807

David Michael +61 8 9268 2835

Jamie Moullin +61 8 9268 2856

Chris Munro +61 8 9268 2858

Michael Munro +61 8 9268 2820

Ian Parker +61 8 9268 2810

Matthew Parker +61 8 9268 2826

Charlie Ransom

(CEO)

+61 8 9268 2868

Mark Sandford +61 8 9268 3066

David Smyth +61 8 9268 2839

Greg Soudure +61 8 9268 2834

Sonya Soudure +61 8 9268 2865

Dirk Vanderstruyf +61 8 9268 2855

Samuel Williams +61 8 9268 3041

Jayme Walsh +61 8 9268 2828

Disclaimer/Disclosure

The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold

shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities.

Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice

mentioned in publications to clients.

Hartleys has provided corporate advice within the past 12 months and continues to provide corporate advice to Emmerson Resources Limited,

for which it will earn fees.

Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting

your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.

Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued.

Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in

negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law.

emmerson resources limited (erm) - hartleys · monetising gold deposits which are not expected to...

Documents