thor explorations limited (tsxv: thx) – highly robust ... · gold pour in 2020 ... approximately...

Siddharth Rajeev, B.Tech, MBA, CFA

February 11, 2019

2019 Fundamental Research Corp. “15+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Thor Explorations Limited (TSXV: THX) – Highly Robust Definitive Feasibility Study / Planning First

Gold Pour in 2020

Sector/Industry: Junior Resource www.thorexpl.com

Market Data (as of February 11, 2019)

Current Price C$0.18

Fair Value C$0.50

Rating* BUY

Risk* 5 (Highly Spec)

52 Week Range C$0.13 - C$0.22

Shares O/S 370,682,965

Market Cap C$66.72 mm

Current Yield N/A

P/E (forward) N/A

P/B N/A

YoY Return 0.0%

YoY TSXV -24.7% *see back of report for rating and risk definitions

Investment Highlights

On February 4, 2019, Thor Explorations Limited (“Thor”, “company”) announced the completion of a Definitive Feasibility Study (“DFS”) on potential open-pit operations, and a Preliminary Economic Assessment (“PEA”), on an additional underground project at its 100% owned Segilola gold project in Nigeria.

At a grade of 4.2 gpt, Segilola is estimated to host the highest

grade known open pit gold deposit in West Africa.

Based on a gold price of US$1,300 per oz, the After-Tax Net Present Value (“AT-NPV”) at 5%, of the open pit operations, was estimated at US$138 million, and the AT-NPV, at 5%, of the underground operations was estimated at US$35 million, for a total of US$173 million. Our base-case fair value estimate on the project, as of our initiating report in July 2018, was US$140 million.

The After Tax Internal Rate of Return (“AT-IRR”) was

estimated at 50%, implying highly robust economics. The all-in-sustaining-cost estimate for the open pit operations was estimated at just US$662 per oz.

The project already has a mining license. The company is

currently in advanced discussions with project financiers. Subject to financing, management’s current plan is to start

construction this year, with first gold pour targeted in the second half of 2020.

In September 2018, the company closed a $8 million financing; its largest financing to date.

Thor intends to complete an initial resource this year at its Douta gold project in Senegal.



Robust DFS on

the Segilola

Gold Project,

Nigeria

On February 4, 2019, the company announced results of a DFS on potential open-pit operations, and a PEA on an additional underground project at the Segilola gold project. The project is located in Osun State, approximately 120 km northeast of Lagos. The project site has good access as it is within 600 m of a sealed road, and 18 km south of Ilesha (300,000 population).

Thor’s Asset Portfolio

Source: Company

Segilola is estimated to host the highest grade known open pit gold deposit in West Africa.

Gold Projects in West Africa

Source: Company



A PFS on the open pit operations was completed in 2017. The DFS, which was based on a

smaller pit, and a five year mine life, used a 625,000 tpd processing plant (versus the PFS’ 500,000 tpa / seven year mine life), comprised of conventional crushing, grinding, and carbon in leach processing to produce gold dore. The PEA on the underground resource was based on a three year mine life, which can be advanced to production during the open pit mine life.

Proposed Site Infrastructure Layout

Power supply will be provided by seven 1.2 MW Compressed Natural Gas (CNG) generators. CNG will be delivered to the site.

A tailings management facility will be located 1.3 km southwest of the processing plant.

Water will be sourced from the tailings storage facility (from surface / rain water) and/or from a proposed storage dam located within the mining license.

Source: Company

As the DFS was based on a smaller pit, the study used a slightly lower reserve of 3 Mt at 4.2 gpt, while the PFS used 3.3 Mt at 4.2 gpt.



Reserve Estimate (Open-Pit)

Resource Estimate (Open-Pit)

Resource Estimate (UG)

Open Pit Mine and Underground Mine Design

Source: Company

The following table summarizes the latest results versus the 2017 PFS’ results.



Source: Company

As the 2018 DFS used a lower reserve estimate, it is not appropriate to directly compare

the 2018 FS and 2017 PFS. Based on a gold price of US$1,300 per oz, the AT-NPV at 5%, of the open pit operations, was estimated at US$138 million, and the AT-NPV at 5%, of the underground operations, was estimated at US$35 million, for a total of $173 million. The 2017 PFS for the open pit operations showed a US$138 million AT NPV at 5% at US$1,250 per oz gold. The AT-IRR was estimated at 50%, implying highly robust economics. The all-in-sustaining-cost estimate dropped from US$682 to US$662 per oz.

The following table and chart shows the sensitivity of the NPV and IRR to gold prices and discount rates.

Sensitivity

Source: Company



Exploration

Upside

The project already has a mining license (renewed in September 2016, for a period of 25 years) and an Environmental Impact Assessment / “EIA” (received in March 2013), conditional on completion of an Environmental Management Plan (EMP), Environmental and Protection and Restoration Plan (EPRP), and Community Development Agreement (CDA), prior to commencement of operations. The EPRP was recently approved, and the EMP and the CDA are currently being prepared.

Subject to attaining financing, the company can ideally start construction this year, with an 18-month construction period. The company is currently in advanced discussions with

project financiers. In October 2017, the company entered into a Memorandum of Understanding with Norinco International to build the plant and associated infrastructure.

The following chart shows management’s expected timeline for development. Their current

plan is to start construction this year, with first gold pour targeted in the second half of

2020.

Source: Company

Note that Nigeria has no large-scale commercial gold mining, although small scale mining (largely family owned operations mining alluvial gold) is prevalent. Thor has a significant

first mover advantage, and Segilola is the most advanced commercial large scale gold

project in the country. A key advantage for mining companies is that there is a tax

exemption for the first three years of operations (potential for extension to five years), and losses can be carried over indefinitely.

So far, the mineralized zones have been estimated to stretch across 2,000 m in strike, with thickness varying from 2 m to over 20 m, and depths of up to 400 m from surface. The open



Other Projects

Board

Additions

pit is estimated to be 1,600 m long, 140 m to 430 m wide, 55 m to 210 m deep.

As detailed in our initiating report, there is potential to extend known resources at depth. In addition, approximately 5 km of prospective strike in the project area remain underexplored. In their latest press release, the company provided an exploration target (underground) of 0.33 to 0.6 Moz.

Segilola Initial Underground Exploration Target

Source: Company

There has not been any material updates on Thor’s other projects. The following table shows a snapshot of the current portfolio:

Source: FRC

Management intends to complete an initial resource on Douta this year.

CEO, Segun Lawson, who has been leading the company since 2011, and two Nigeria

based members, hold approximately 13.5% of the total outstanding shares. In August 2018, the company announced the appointment of Adrian Coates as Non-Executive Chairman. Mr. Coates had joined the board as a Non-executive Director in December 2016. The company also added Collin Ellison as a Non-executive Director. Brief biographies of the two members, as provided by the company, are shown below: Adrian Coates, MA, MBA - Chairman

Adrian has over 25 years' experience in the mining sector. He served as the Global Sector Head of Resources and Energy Group, Global Banking and Markets Division of HSBC Bank plc until 2008. He was cited in the press as "HSBC's star advisory banker" and named in Financial News' "Top 20 European Dealmakers" in late 2007. He served as Managing Director, Metals and Mining at UBS Investment Bank, London and was responsible for originating the landmark Billiton IPO. He currently serves as Senior Independent Director and Audit Committee Chairman of JKX Oil & Gas plc. He also served as a Senior Independent Non-Executive Director of Polyus Gold International Limited. Mr. Coates holds



Financials

Stock Options

and Warrants

Valuation and

Rating

an MA degree in Economics from Cambridge University and an MSc (MBA) from London Business School. Collin Ellison, BSc, CEng – Independent Director

Mr. Ellison is a Mining Engineer with over 40 years of experience in mine design, construction, project implementation and operation. He managed the completion of a number of feasibility studies for projects that were later developed by other parties such as Olympic Dam Life-of-mine study for Western Mining Corporation (later acquired by BHP Billiton). Mr. Ellison’s recent West African roles included President & CEO of Goldbelt Resources developing the Inata Gold Project in Burkina Faso and President & CEO of PMI Gold Corporation, developing the Obatan Gold Project in Ghana which was successfully taken over by Asanko Gold, Canada.

In September 2018, the company closed a $8 million financing (its largest financing to date) by issuing 44.45 million units at $0.18 per unit. Each unit consisted of a common share and one full warrant (exercise price of $0.28 per share for 3 years). The company had not offered free warrants on its previous financing in March 2018, when it raised $4.23 million, indicating an overall weakness in the sector in the second half of 2018. At the end of Q3-2018, the company had cash of $3.67 million. The company had working capital of $2.65 million. The following table summarizes the company’s liquidity position:

Source: Financial Statements

We estimate the company had a burn rate (G&A) of $0.12 million per month in the first nine months of 2018. The company spent approximately $0.45 million in property related activities (exploration / development). The company currently has 20.05 million options (weighted average exercise price of $0.14 per share) and 46.12 million warrants outstanding. At this time, all of the options are in-

the-money. We estimate that the company could raise up to $2.73 million if all the options are exercised. The following table shows our revised valuation on Segilola, which is now at $169 million, versus our previous estimate of $153 million. Valuation increased primarily due to the increase in throughput from 500,000 to 625,000 tpa. However, the value per share dropped from $0.46 to $0.45, due to share dilution from the recent financing. Most of the inputs we have used in our models are in line with the DFS estimates. We have used 100% of the



indicated and inferred resources, which gave a mine life of 7 years. We have continued to use a discount rate of 13.5%.

Source: FRC

We have continued to value the Douta project, and the Central Houndé project, at their book values for conservatism. The following table summarizes our valuation on Thor.

Source: FRC

The sensitivity of our valuation to key inputs is shown below:

Source: FRC



Risks

We reiterate our BUY rating and our fair value estimate of $0.50 per share. We believe

Thor’s strong management team, and well-connected board members in Nigeria, will

play a vital role as Segilola is advanced to production. We believe the company is exposed to the following key risks (not exhaustive): The value of the company is highly dependent on gold prices. Development risks. Political risks and changes to mining laws in target countries may negatively impact the

company. Permitting risks. Access to capital and share dilution. Exchange rate. As with most junior exploration / development companies, we rate Thor’s shares a risk

of 5 (Highly Speculative).



Fundamental Research Corp. Equity Rating Scale:

Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale:

1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative.

Disclaimers and Disclosure

The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” do not own any shares of the subject company, do not make a market or offer shares for sale of the subject company, and do not have any investment banking business with the subject company. Fees were paid by Thor to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, Thor has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The distribution of FRC’s ratings are as follows: BUY (72%), HOLD (7%), SELL / SUSPEND (20%). To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

thor explorations limited (tsxv: thx) – highly robust ... · gold pour in 2020 ... approximately...

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