Euromax Resources — Update 6 January 2016

Euromax Resources — Update 6 January 2016

Euromax Resources

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Euromax Resources

Definitive feasibility study results

Results of DFS

Metals & mining

7 January 2016

Price

C$0.35

Market cap

C$41m

C$1.4030/US$

Net cash (C$m) end September 15

*2.1

* Excludes streaming liability

Shares in issue

116.8m

Free float

47%

Code

EOX

Primary exchange

TSX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(12.5)

0.0

84.2

Rel (local)

(8.2)

7.2

106.2

52-week high/low

C$0.52

C$0.19

Business description

Euromax Resources is a Canadian resource company that focuses on the acquisition and development of mineral-bearing assets in Southeast Europe. Its flagship asset, Ilovica, in Macedonia, is the subject of a recently completed definitive feasibility study.

Next events

Final (construction) permits

June 2016

Construction commences

H216

Analyst

Charles Gibson

+44 (0)20 3077 5724

Euromax ResourcesEuromax Resources is a research client of Edison Investment Research Limited

On 6 January, Euromax released the results of its feasibility study on its 100%-owned Ilovica gold-copper porphyry project, conducted by Amec Foster Wheeler, Tetra Tech, DMT, Golder Associates and Schlumberger, amongst others. While reported pre-tax and post-tax NPVs (using a 5% discount rate) are lower than the corresponding figures in 2014’s pre-feasibility study (PFS), at US$513.0m and US$440.1m (vs US$675m and US$558m) respectively, the corresponding internal rates of return are higher, at 19.8% and 17.8% (vs 18.6% and 16.5%). This is as a result of lower initial capex (US$474.3m vs US$501.8m, including contingency) and the more efficient phasing of cash flows. The result is indicative of a more efficient project in capital terms, which is likely to manifest itself in lower future dilution to equity holders, and comes despite the definitive feasibility study using lower long-term metal prices of US$1,220/oz Au and US$2.90/lb Cu (vs US$1,250/oz and US$3.00/lb in the PFS).

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

0.0

(5.4)

(6.6)

0.0

N/A

N/A

12/14

2.7

(6.6)

(7.8)

0.0

N/A

N/A

12/15e

3.7

(8.6)

(7.4)

0.0

N/A

N/A

12/16e

0.0

(8.8)

(2.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Proven reserves and measured resources multiply

Overall, the major operating parameters of the project, such as annual throughput (10Mtpa) and mine life (20 years vs 23 years), remained little changed compared with the PFS. Within resources, however, 99.3Mt of indicated material was upgraded into the measured category, which increased 8.7-fold (or 1.5Moz Au) as a result. Similarly, all of the sulphide ore’s reserves (and more) were upgraded from the ‘probable’ category into ‘proven’, thereby increasing geological confidence and reducing risk concomitantly. Significantly, World Gold Council-defined adjusted operating cash costs are estimated to be US$200/oz and all-in costs to be US$372/oz (after Cu credits), which should put Ilovica well within the industry’s lowest-cost quartile. The base date for prices in the feasibility study is September 2015, with opex costs estimated to an accuracy of 10% (vs 25% for the PFS).

Valuation: Developer for the price of an explorer

In the December edition of Edison Insight, we estimated the life-of-mine dividend stream to investors to be C$0.95/share, fully diluted, at a share price of C$0.35 and a forex rate of C$1.3012/US$. This reduces to C$0.83 at the current share price and forex rate, but will be updated once the full DFS is released. In the meantime, the DFS’s post-tax NPV5 of US$440.1m equates to US$3.77 (C$5.31) per existing Euromax share (ie undiluted), while its enterprise value equates to less than US$4.64 per gold equivalent resource ounce (excluding Inferred resources) – ratings comparable to costs of discovery, rather than a company in the final stages of permitting.

Exhibit 1: Financial summary

C$'000s

2011

2012

2013

2014

2015e

2016e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

2,695

3,663

0

Cost of Sales

0

0

0

(2,251)

(3,018)

0

Gross Profit

0

0

0

444

645

0

EBITDA

 

 

(2,521)

(4,973)

(5,276)

(6,366)

(7,944)

(8,589)

Operating Profit (before amort. and except.)

(2,611)

(5,056)

(5,375)

(6,492)

(8,121)

(8,766)

Intangible Amortisation

0

0

0

(21)

(8)

0

Exceptionals

(40)

59

(1,806)

(4,186)

(1,979)

0

Other*

(835)

(428)

(835)

4

12

0

Operating Profit

(3,485)

(5,425)

(8,015)

(10,695)

(10,096)

(8,766)

Net Interest

0

0

(17)

(127)

(524)

15

Profit Before Tax (norm)

 

 

(2,611)

(5,056)

(5,392)

(6,619)

(8,645)

(8,752)

Profit Before Tax (FRS 3)

 

 

(3,485)

(5,425)

(8,033)

(10,822)

(10,620)

(8,752)

Tax

0

(33)

(30)

(25)

(27)

0

Profit After Tax (norm)

(2,514)

(4,947)

(5,414)

(6,640)

(8,660)

(8,752)

Profit After Tax (FRS 3)

(3,485)

(5,458)

(8,063)

(10,847)

(10,647)

(8,752)

Average Number of Shares Outstanding (m)

48.0

63.4

82.6

85.3

116.8

351.7

EPS - normalised (c)

 

 

(5.2)

(7.8)

(6.6)

(7.8)

(7.4)

(2.5)

EPS - (IFRS) (c)

 

 

(7.3)

(8.6)

(9.8)

(12.7)

(9.1)

(2.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

#DIV/0!

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

#DIV/0!

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

#DIV/0!

BALANCE SHEET

Fixed Assets

 

 

11,929

17,084

18,015

16,641

26,293

26,115

Intangible Assets

0

0

29

430

422

422

Tangible Assets

11,929

17,084

17,985

16,211

25,871

25,693

Investments

0

0

0

0

0

0

Current Assets

 

 

2,798

3,341

6,290

3,180

3,281

145,926

Stocks

0

0

0

0

305

0

Debtors

776

1,579

608

199

301

0

Cash

2,022

1,762

1,335

2,110

1,804

145,055

Other

0

0

4,346

871

871

871

Current Liabilities

 

 

(530)

(749)

(1,208)

(5,831)

(7,790)

(7,542)

Creditors

(530)

(749)

(1,208)

(4,996)

(6,955)

(6,707)

Short term borrowings

0

0

0

(835)

(835)

(835)

Long Term Liabilities

 

 

0

0

0

0

(10,568)

(21,135)

Long term borrowings

0

0

0

0

(10,568)

(21,135)

Other long term liabilities

0

0

0

0

0

0

Net Assets

 

 

14,198

19,675

23,096

13,990

11,216

143,364

CASH FLOW

Operating Cash Flow

 

 

(1,966)

(5,178)

(4,496)

(2,494)

(6,904)

(8,217)

Net Interest

0

0

(17)

(18)

0

0

Tax

0

0

(35)

(26)

(27)

0

Capex

(5,245)

(6,947)

(5,047)

(2,122)

(11,816)

0

Acquisitions/disposals

0

1,468

1,041

3,023

0

0

Financing

7,907

10,479

7,961

(74)

7,874

140,900

Dividends

0

0

0

0

0

0

Net Cash Flow

696

(178)

(594)

(1,711)

(10,873)

132,683

Opening net debt/(cash)**

 

 

(1,253)

(2,022)

(1,762)

(1,406)

(1,275)

9,598

HP finance leases initiated

0

0

0

0

0

0

Other

73

(83)

167

1,580

0

0

Closing net debt/(cash)**

 

 

(2,022)

(1,762)

(1,335)

(1,275)

9,598

(123,085)

Source: Company sources, Edison Investment Research. Note: Closing net debt/(cash) includes ‘restricted cash’ from FY14.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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NSW 2000, Australia

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New Zealand

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