ev / resource ev / reserve $/oz · 19m @ 1.4g/t from 25m 14m @ 1.5g/t from 13m figure 4: cross...
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Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 1
SPEC BUY Current Price $0.035
SNAPSHOT
Ticker: MOY
Sector: Materials
Shares on Issue (m)*: 742.7
Market Cap ($m)*: 26.0
Cash and Bullion Estimate ($m)*: 11.0
Debt Estimate ($m)*: 5.9
Enterprise Value ($m)*: 20.9
52 wk High/Low: $0.09 $0.02
12m Av Daily Vol (m):
*post completion of raising
Mineral Inventory (at December 2014)
Mt g/t koz
Reserves 4.2 1.4 188
Resources 44.1 1.2 1626
$/oz
EV / Reserve 111
EV / Resource 13
Directors and management:
Richard procter Non-Executive Chairman
Glenn Dovaston CEO
Greg Bittar Executive Director
Ross Gillon Non-Executive Director
Michael Chye Non-Executive Director
Substantial Shareholders:
IMC** 48.1%
Share Price Graph
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Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Friday, 18 December 2015
Millennium Minerals M marks the spot Analysts | Patrick Chang, CFA | Matthew Keane
Quick Read
Millennium Minerals (MOY) operates the Nullagine Gold Mine, located in the Pilbara
region of Western Australia. The Company’s CY15 guidance is 88-93koz @ AISC A$1,190-
1,240/oz (86koz produced by 30th
November). Production and costs have been
improving since early CY15 and the Company delivered a record September Q, producing
27.2koz @ AISC A$1,020/oz. Whilst the current short mine life (<2 years) is
acknowledged, the investment case will become more compelling when the MOY team
demonstrates near mine and regional exploration upside. The Company has recently
completed a A$21m capital raising, which retires A$14m of IMC debt. Importantly, the
enhanced balance sheet enables MOY to commence a reinvigorated exploration
program (A$10m budget). With an EV of ~A$20m, the stock provides an inexpensive
entry into the Australian gold space (see page 4). Argonaut assigns a Speculative Buy
recommendation with a 12-month view.
Event & Impact | Positive
Capital raising enables debt repayment and exploration: MOY has completed a A$21m
capital raise (@ 4.0c), which will enable the Company to retire the A$14m IMC debt.
Post raising, the Company has a cash balance of ~A$11m and bank debt of A$5.9m,
which is expected to be repaid in early CY16. IMC owns ~50% of MOY. Importantly, the
recapitalisation will enable the Company to undertake a major exploration program
which will likely see the Resource and Reserve expand (net of mining depletions).
Mine life a challenge and an opportunity: The short mine life presents both a challenge
and an opportunity. Given the modest market capitalisation, tangible exploration
success could transform into share price appreciations. MOY’s program will commence
with the testing of near mine mineralisation extensions at various pits, which could
provide ~12 months of addition feed. Concurrently, MOY will explore various earlier
stage regional targets along the ~40km Middle Creek Fault. This could lead to the
delineation of sizable new deposits. MOY owns the only gold plant in the region.
Operation has been improving: Following updated Reserves and management changes
in late CY14/early CY15, the Nullagine operation has been delivering increasing
production at lower costs (see Figure 2, page 3). Performance of the plant has been
particularly impressive, with throughput at ~25% above nameplate capacity. This led to
the Company revising its CY15 guidance to 88-93koz @ AISC A$1,190-1,240/oz. Given
the significant sulphide inventory, there is scope to examine options for a sulphide
operation in the long-term (e.g. by utilising a flotation / regrind / CIL circuit).
Recommendation
Argonaut assigns a Speculative Buy recommendation with a 12-month view.
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 2
Overview and project history
MOY operates the Nullagine Gold operation, located in the Pilbara region, Western
Australia. The tenement package is located 185km north of Newman and totals 264km2,
mostly under existing Mining Leases (MLs) with some tenements under Exploration
Permits and joint ventures. The 1.5Mtpa oxide processing facility (currently running at
~1.9Mtpa) was constructed in CY12 for ~A$90m. First gold was poured in late CY12. The
operation is currently a 100% oxide operation, although some of the shallow sulphide
material with better recoveries has been factored into the existing Reserve.
Figure 1: Nullagine project location
Source: MOY
Historic reconciliation issues
Since initial production, the operation has experienced a number of difficulties, most
notably the underperformance of grade and inventory against the old Reserve model.
This has resulted in lower than expected FCF being generated and, as a consequence,
limited exploration.
Major inventory write-down in early CY15
Following the appointment of Glenn Dovaston as CEO in late CY14, MOY announced a
significant write down in inventory (-15% Resources, -59% Reserves) in early CY15. This
accounted for depletion, historic reconciliation performances and more realistic mining
assumptions. In Argonaut’s view, this Reserve better reflects the underlying economic
ounces of the operation. Some of the technical parameters also appear conservative,
encouraging future upside.
MOY operates the Nullagine Gold
operation…
…located in the Pilbara region,
Western Australia
The operation is currently a 100%
oxide operation…
…expected to produce ~90koz in
CY15
Historically the operation had
reconciliation issues…
…which saw a major inventory
write-down in early CY15
Comments here
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 3
The mill currently sources oxide ore from a number of open pits.
Table 1: Reserve and Resource (as at 31
st December 2014)
Source: MOY
Nullagine has been on the improve
Following the updated Reserve, the Nullagine operation has recorded increasing
production at lowered costs. Performance of the plant has been particularly impressive,
with throughput at ~25% above nameplate capacity. This led the Company to revise its
CY15 guidance upward to 88-93koz @ AISC A$1,190-1,240/oz.
Figure 2: Nullagine production and costs
Source: MOY
Argonaut considers the updated
inventory a better reflection of
economic ounces
Since early CY15 the operation has
delivered increased production
and lower costs…
…with the plant running ~25%
above nameplate capacity
…which saw a major inventory
write-down in early CY15
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 4
Recent capital raising alleviates balance sheet risks, enables exploration
MOY recently completed A$21m capital raise, which will enable the Company to retire
the ~A$14m IMC Resources Gold Holdings (IMC) debt. Post raising, the Company has a
net cash balance of ~A$11m and bank debt of A$5.9m (owed to BNP Paribas and NAB),
which is expected to be repaid in early CY16. IMC has participated in a debt-to-equity
swap in the recent raising and owns ~50% of MOY post raising. Importantly, the
recapitalisation will enable the Company to undertake a major exploration program
which will likely see Resource and Reserve expansions (net of mining depletions).
Investment thesis
Opportunities and risks
On a FF EV / production basis, MOY is trading at a significant discount compared to its
ASX peers. The stock benefits from AUD denominated costs and well-established
infrastructure. Given the dry-hire nature of the mining fleet, the current down-turn in
the WA iron ore industry (primarily in the Pilbara) is also expected to assist with further
cost reductions. The discount to peers is likely to be the result of the current short mine
life (<2 years). As the exploration program delivers tangible upside, this discount should
decline, subsequently translating into share price appreciations.
Figure 3: FF EV / Production, selected ASX peers
Source: Argonaut
The key risk of the project is the current short mine life. In addition, the current mine
schedule (based on forecast published in MOY’s May 2015 presentation) will see
partially refractory, sulphide material incorporated into the mill feed towards the end of
CY16. This material is likely to increase costs given lower recoveries and elevated ore
hardness (less mill throughput). This lower margin material will be displaced with
additional oxide material delineated from MOY’s exploration program.
The mine plan incorporates the mining of several smaller pits in the near future, which
could increase operational complexity. This is mitigated with conservative mining
assumptions (dilution / ore loss) and operational experience gained by the site staff in
recent years.
BDR
SAR
RSGDRM
SLR
SBM
MOY
EVN
MMLTRY
PRU
RRL
NST
AQG
KCNTGZ
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
-100 0 100 200 300 400 500
FF E
V/P
roduction (
A$/o
z)
Normalised FCF margin (A$/oz)
Bubble size = production rate kozpa
The recent capital raising allows
debt repayment and a
reinvigorated exploration effort
The stock is cheap on FF EV /
production metrics…
…exploration success should see
this discount narrow from an
appreciating share price
Risks include short mine life,
incorporation of partially
refractory ore…
…and multiple pits in the mine
plan
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 5
Exploration upside
Near mine extensions - focus in the near term
MOY’s program will test near mine, high priority targets consisting of mineralisation
extensions to various pits, which could provide ~12 months of addition feed. This
includes multiple targets at All Nations, Bartons, Shearers / Otway, as well as Au81 and
Golden Eagle.
This program is considered low risk, given geological understanding and numerous ore
grade hits within the targets.
All Nations
The All Nations deposit is located ~24km from the Nullagine processing plant. Recent
drilling has demonstrated wide, shallow oxide mineralisation extensions at the southern
end of the existing pit.
Better results include (downhole width):
22m @ 1.6g/t from 8m
19m @ 1.4g/t from 25m
14m @ 1.5g/t from 13m
Figure 4: Cross section at All Nations southern extension
Source: MOY
Bartons
The Bartons open pit is located ~17km from the Nullagine processing plant. The current
mine plan only incorporates a portion of the Main and East Lodes. There is tangible
upside from mineralisation in the Hanging Wall Lodes and East Lode Extension.
This potential is supported by numerous drill hits (downhole widths):
24m @ 1.3g/t from 8m
10m @ 9.6g/t
8m @ 9.3g/t
Exploration effort is likely to
commence with tangible near
mine extensions…
…which Argonaut considers low
risk given historic ore grade
intersections
These targets include All Nations,
Bartons, Shearers / Otway, as well
as Au81 and Golden Eagle
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 6
Figure 5: Plan view showing potential extensions at Bartons
Source: MOY
~50km strike covered
A regional program that tests earlier stage targets along the ~40km Middle Creek Fault is
expected in the next CY. The Middle Creek Fault and Blue Spec Fault control regional
mineralisation within the Middle Creek Mineralisation Corridor. The well-endowed
Middle Creek Fault has numerous gold deposits hosted in secondary splay structures in
different orientations and sedimentary rock units. The eastern portion of this corridor
could potentially deliver significant upside as it has favourable structural settings and is
less explored.
Figure 6: MOY tenement holding and the two key geological features
Source: MOY
Potential for mineral extensions
are tangible and supported by
drilling results
Longer term the Company will
likely test regional targets…
…along the ~40km strike of the
Middle Creek Fault
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 7
Important Disclosure Argonaut acts as Corporate Adviser to MOY and will receive fees commensurate with this service. Argonaut acts as Lead Manager and Underwriter to the $21M Capital Raising as announced on 14 October 2015 and will receive fees commensurate with this service. Information Disclosure Each research analyst of this material certifies that the views expressed in this research material accurately reflect the analyst's personal views about the subject securities and listed corporations. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this material to any of the analyst(s). 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RESEARCH:
Ian Christie | Director, Industrial Research +61 8 9224 6872 [email protected] Philipp M-O Kin | Analyst, Oil & Gas Research +61 8 9224 6864 [email protected] Patrick Chang | Analyst, Metals & Mining Research +61 8 9224 6835 [email protected] Matthew Keane | Analyst, Metals & Mining Research +61 8 9224 6869 [email protected] Helen Lau | Analyst, Metals & Mining Research +852 3557 4804 [email protected] INSTITUTIONAL SALES - PERTH:
Chris Wippl | Executive Director, Head of Sales & Research +61 8 9224 6875 [email protected] John Santul | Consultant, Sales & Research +61 8 9224 6859 [email protected] Damian Rooney | Senior Institutional Dealer +61 8 9224 6862 [email protected] Ben Willoughby | Institutional Dealer +61 8 9224 6876 [email protected] INSTITUTIONAL SALES – HONG KONG:
Travis Smithson | Managing Director - Asia +852 9832 0852 [email protected] Glen Gordon | Institutional Research Sales +852 3557 4874 [email protected] CORPORATE AND PRIVATE CLIENT SALES:
Glen Colgan | Executive Director, Desk Manager +61 8 9224 6874 [email protected] Kevin Johnson | Executive Director, Corporate Stockbroking +61 8 9224 6880 [email protected] James McGlew | Executive Director, Corporate Stockbroking +61 8 9224 6866 [email protected] Ian Dorrington | Director, Corporate Stockbroking +61 8 9224 6865 [email protected] Geoff Barnesby-Johnson | Senior Dealer, Corporate Stockbroking +61 8 9224 6854 [email protected] Rob Healy | Dealer, Private Clients +61 8 9224 6873, [email protected] Tony Locantro | Dealer, Private Clients +61 8 9224 6851, [email protected] Cameron Prunster |Dealer, Private Clients +61 8 9224 6853 [email protected] James Massey |Dealer, Private Clients +61 8 9224 6849 [email protected] Chris Hill | Dealer, Private Clients +61 8 9224 6830, [email protected]