METRO MINING LIMITED Equity Research
Metro Mining1 | BUY | |
MMI AU | ||
Last: | A$0.07 | |
November 9, 2015 | Target: | A$0.18 |
Metro's DFS released last week shows 1.95Mtpa over 25 years, producing 49.1Mt. Capex is only A$33.9m with opex of US$22.92/t against an estimated FOB price of US$44/t for an impressive 52% gross margin. Compared to the PFS, the DFS shows a 10% drop in reactive silica (RxSi) to 6.4%, a slightly longer life and slightly higher capex. Overall the quote-driven study validates the PFS, and should increase investors' confidence in the project.
Furthermore the drop in RxSi increases confidence in the ability to find buyers for the product, the markets for which have recovered from 3Q15 troughs.
With its proximity to China and incredibly low capital intensity, we think this project stands out not just above peers, but in the junior mining space.
EIS progressing after interdepartmental review dismissedIn September, the Queensland government requested a full EIS, and this decision has now upheld. Metro has commenced work on the EIS (first documents consisting of an Initial Advice Statement and a draft Terms of Reference), and aims to submit in 1H16 for 3Q16 target grant date. Land rights issues should be completed ahead of this with the Section 31D native title formalities targeting completion this year.
Focus turns to 4-5 Mtpa scenarioBrock Salier, PhD | +44-207-016-1904 |
brock.salier@gmpeurope.com | |
Justin Chan | +44-207-647-2806 |
justin.chan@gmpeurope.com | |
With a full EIS underway, there is no longer a 2Mtpa cap. Metro will submit terms of reference for a 5Mpta scenario and is preparing a scoping study for a 4-5 Mpta operation. Either way we expect operations to start up a 2Mtpa, with upsizing at modest incremental capex. For example, if we lift production from 2Mtpa to 4Mtpa in FY20 for A$15m capex, our NPV10% would lift from US$132m to US$187m, with plateau EBITDA of A$81m. With the bottleneck being barge-loading infrastructure, the company has sensibly scoped the port area for 5.5Mtpa giving optionality to expand even further in due course.
Maintain BUY rating and A$0.18/sh PTWe update our model for the new mine plan, modelling A$17.5m of equity at modest premium (A$0.10/sh). Using a 0.5x NAV multiple to balance the now complete DFS and fully diluted methodology, but permitting, timing and build risk ahead, we maintain our BUY rating A$0.18/sh target price. Even on a FD basis, we estimate Metro is currently trading at only 0.3xNAV.
Rating BUY n.c.
Target A$0.18 n.c.
Project Name: Bauxite Hills
Production (Mtpa): 2.0 n.c.
Breakeven cost ($/t CIF) 49 51
Share Data | |
Shares o/s (mm, b/f.d.) | 358.5 / 539.1 |
52-week high/low | 0.13 / 0.02 |
GMP Project NPV10%: 163 132
3M avg daily vol (m) 0.21
3M avg daily val (m) 0.05
Market cap (m) 17.6
Net cash (debt) (m) 4.6
Enterprise value (m) 11.1
Projected return 144%
Financial Data YE Jun. 30 | 2014A | 2015E | 2016E |
Revenue (A$m) | 0.3 | 0.5 | - |
EBITDA (A$m) | (1.3) | (3.0) | (4.8) |
Net income (A$m) | (17.6) | (2.5) | (4.9) |
EPS (0.01) (0.01) (0.01)
CFPS (0.00) (0.01) (0.01)
PER - - -
P/CF - - -
EV/EBITDA - - - 1.0xNAV10% A$0.34
All figures in US$ unless otherwise noted
Prepared by GMP Securities Europe LLP. See important disclosures on the last two pages of this report
Equity Research
The mine life has been extended to 25.2 years with total mining inventory of 49.1Mt up from 22 years and 42.0Mt, respectively. Average annual production is down to 1.95Mtpa from 2.00Mpta in an effort to comply with the (no longer applicable) EA production cap, so we model 2Mtpa. Opex per tonne of product is up to A$29.75/t or US$22.31/t from A$26.69/t and US$21.62/t, respectively, a 12% decrease in AUD terms and a 0.4% decrease in USD terms. Initial capex increased to A$33.9m from A$27.4m due to increased granularity on load out areas. Reactive silica decreased from 7.1% to 6.4% increasing the marketability of the finished product - this came from dropping the total resource tonnes by removal of now well-defined peripheral lower- grade skins on the ore body. The DFS is quote driven and increases the level of confidence from the previously desktop PFS.
Total resource tonnage was reduced in June 2015 to 53.6Mt from 61.5Mtdue to a lower reactive silica ceiling cut-off as noted above, thus potentially increasing demand for the DSO product. This is expected to improve realisable DSO pricing as well as the intangible benefit of increased saleability. We model FOB as US$65/t CIF price for benchmark product, less US$15/t discount for Metro's lower quality product, less shipping of US$12/t, then adjusted for THA and RxSi bonus/penalty against benchmarked 39.3% THA and 6.7% RxSi. This drives a FOB price to Bauxite Hills of US$39.5/t, which aligns well with the ~US$41/t that Malaysian producers are now receiving for washed product. We note that Malaysian producers are now upgrading the quality of their product thus easing pressure on prices with Chinese demand remaining stable.
Figure 1. Summary of key DFS and PFS terms and new and prior GMP estimatesBauxite Hills | PFS | DFS | (%) | GMP Old | GMP new | (%) |
Mining inventory (Mt) | 42 | 49.1 | 16.9% | 48.2 | 49.1 | 1.9% |
THA (% Al 2O3 ) | 49.9* | 50.2 | 0.6% | - | - | - |
THA (%) | 37.8* | 38.4 | 1.6% | 38.7 | 38.4 | -0.9% |
Reactive s i l i ca (%) | 7.1 | 6.4 | -9.9% | 6.7 | 6.4 | -4.1% |
THA / RxSi | 5.3 | 6.0 | 12.7% | 6.0 | 6.0 | 0.0% |
Avg. annual prod'n (Mtpa) | 2.00 | 1.95 | -2.5% | 2.00 | 2.00 | 0.0% |
Mine life (years) | 21 | 25 | 20.0% | 22 | 25 | 13.6% |
Cash cost incl. royalties (US$/t FOB) | 21.02 | 20.92 | -0.4% | 18.1 | 19.9 | 10.1% |
FOB bauxite price (US$/t) | 44.8 | 44.0 | -1.9% | 38.6 | 39.3 | 1.7% |
AUD/USD | 0.81 | 0.75 | -7.4% | 0.70 | 0.70 | 0.0% |
LOM avg. annual NPAT (US$m) | 30.7 | 28.0 | -8.9% | 28.3 | 25.8 | -8.9% |
Initial capex (A$m) | 27.4 | 33.9 | 23.7% | 30.0 | 36.0 | 20.0% |
NPV15% (US$m) | 160 | 176 | 10.5% | 163 | 132 | -18.9% |
IRR (%) | 88% | 148% | 68.2% | 100% | 64% | -36.1% |
Source: GMP and company data Catalysts |
- 4Q15: Section 31D settlement (GMPe)
1H16: EIS submissions (GMPe)
3Q16: EIS granted (GMPe)
Ticker: MMI AU | Share price | A$0.07/sh | Stock rating: | BUY | Implied return: | 144% |
Analyst: Brock Salier | Market cap | A$25m | Target price: | A$0.18/sh | Market P/NAV | 0.29x |
Equity Research
Year to June | Year to June | |||||||||||
Ratio analysis | FY14A | FY15E | FY16E | FY17E | FY18E | Input costs | FY14A | FY15E | FY16E | FY17E | FY18E | |
Average shares outstanding (m) | 208.9 | 288.7 | 358.5 | 358.5 | 358.5 | Bauxite Price CIF China ($/t) | 65 | 65 | 65 | 65 | 65 | |
EPS ($/sh) | (0.01) | (0.01) | (0.01) | (0.02) | 0.04 | Bauxite Hill discount ($/t) | 15 | 15 | 15 | 15 | 15 | |
CFPS before working cap ($/sh) | (0.00) | (0.01) | (0.01) | (0.02) | 0.04 | Aus to China shipping ($/t) | 16 | 16 | 12 | 12 | 12 | |
FCF yield (%) | - | - | - | - | 0.60 | AUS/USD (f-x rate) | 1.15 | 1.23 | 1.42 | 1.42 | 1.42 | |
PE (adj.), x - - - - 0.0 Other data | ||||||||||||
P/CF, x | - - - - 0.0 | Basic shares (m) | 358.5 | 12M high: A$0.13/sh | ||||||||
EV/EBITDA, x | - - - - 1.2 | Fully diluted shares (m) | 539.1 | 12M low: A$0.02/sh | ||||||||
EBIT margin, % | - | - | - | - | 33% | Resource / Reserve | Mt | Al203 (%) | SiO2 (%) | SRx | THA/SRx | |
ROIC (EBIT), % | - | - | - | - | 55% | Reserves (P&P) | 12 | 49.2 | 14.8 | 7.4 | 5 | |
Income statement (yr to Jun) | FY14A | FY15E | FY16E | FY17E | FY18E | Resource (M&I + Inf) | 62 | 50.0 | 12.3 | 7.1 | 5 | |
Revenue (A$m) | 0.3 | 0.5 | - | - | 70.9 | Production (100% basis) | FY14A | FY15E | FY16E | FY17E | FY18E | |
COGS (A$m) | 0.1 | - | - | (1.2) | (32.5) | Bauxite DSO production (Mt) | - | - | - | - | 1.40 | |
Gross Profit (A$m) | 0.4 | 0.5 | - | (1.2) | 38.4 | Al2O3 content (%) | - | - | - | - | 38.5 | |
Admin expense (A$m) | (1.9) | (1.2) | (3.6) | (5.0) | (5.0) | SiO2 content (%) | - | - | - | - | 6.4 | |
Impairments(A$m) (15.4) - - - - THA/RxSi (x) - - - - 6.0 | ||||||||||||
Other (A$m) | (1.3) | (1.8) | (1.2) | (1.8) | 28.5 | Cash cost ($/t inc royalties) | - - - - 20.3 | |||||
PBIT (A$m) | (18.6) | (3.1) | (4.8) | (6.8) | 23.5 | All-in breakeven cost (US$/t) | - - - - 55.2 | |||||
Interest expense (A$m) 0.3 0.3 (0.1) (2.2) (3.0)
Tax (A$m) 0.6 - - - -
PAT (A$m) (17.7) (2.8) (4.9) (9.0) 20.6
F-x & minorities (A$m) 0.1 0.3 - - -
EBITDA (A$m) | (1.3) | (3.0) | (4.8) | (6.2) | 25.2 | 1.5 | 40.0 | ||||||||
Cash flow statement (yr to Jun) | FY14A | FY15E | FY16E | FY17E | FY18E | ||||||||||
(Loss) / profit before tax (A$m) | 0.5 | (3.1) | (4.8) | (6.8) | 23.5 | 1.0 | 30.0 | ||||||||
Depreciation (A$m) | - | 0.0 | - | 0.5 | 1.7 | 20.0 | |||||||||
Changes in working capital (A$m) | - | 0.6 | - | (10.3) | - | 0.5 | |||||||||
Other (A$m) | (1.6) | 0.3 | (0.1) | (12.0) | (1.3) | 10.0 | |||||||||
CFO (A$m) | (1.1) | (2.8) | (4.9) | (18.8) | 22.2 | 0.0 | 0.0 | ||||||||
PP&E (A$m) | (0.0) | (0.0) | (1.0) | (35.1) | (7.1) | FY15E | FY16E | FY17E | FY18E | 1 | 1 | 1 | |||
Exploration (A$m) (2.4) (2.0) (0.1) - - SOTP valuation | |||||||||||||||
Other (A$m) | (0.1) | 0.4 | 0.8 | - | - | O/ship | US$m | NAVx | A$m | A$/sh | |||||
CFI (A$m) | (2.5) | (1.6) | (0.3) | (35.1) | (7.1) | Bauxite Hills | 100% | 132 | 0.50 | 94 | 0.17 | ||||
Proceeds from share issue (A$m) | - | - | 5.1 | 16.6 | - | Exploration | 100% | 10 | 0.50 | 7 | 0.01 | ||||
Net change in borrowing (A$m) | - | - | 20.0 | 10.0 | (30.0) | Cash | - | 5 | 0.50 | 3 | 0.01 | ||||
Other (A$m) | - | - | - | - | - | Equity raise | - | 12 | 0.50 | 9 | 0.02 | ||||
CFF (A$m) | - | - | 25.1 | 26.6 | (30.0) | Cash from options | - | 0 | 0.50 | 0 | 0.00 | ||||
Net increase in cash (A$m) | (3.6) | (4.4) | 19.9 | (27.3) | (14.9) | SG&A and central | - | (30) | 0.50 | (21) | (0.04) | ||||
Effect of f-x on cash (A$m) | - | - | - | - | - | Valuation (FD) | 129 | 92 | 0.17 | ||||||
Cash at end of period (A$m) | 7.5 | 5.5 | 23.0 | (4.3) | (19.2) | ||||||||||
Balance sheet (yr to Jun) | FY14A | FY15E | FY16E | FY17E | FY18E | 1.0xNAV evolution | |||||||||
PP&E (A$m) | 9.5 | 10.2 | 12.3 | 46.9 | 52.4 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||
Trade & AR (A$m) | 0.1 | 0.4 | 0.1 | 12.3 | 12.3 | 1xNAV + cummulative cash | 0.34 | 0.46 | 0.42 | 0.66 | 0.78 | ||||
Inventory (A$m) | 0.0 | - | - | 1.1 | 1.1 | ||||||||||
Cash (A$m) | 7.5 | 5.5 | 23.0 | (4.3) | (19.2) | ||||||||||
Other (A$m) | 0.5 | 0.5 | 0.1 | 0.1 | 0.1 | ||||||||||
Total assets (A$m) | 17.6 | 16.6 | 35.5 | 56.1 | 46.7 | ||||||||||
AP (A$m) | 0.3 | 0.5 | 0.7 | 3.7 | 3.7 | ||||||||||
Debt (A$m) | - | - | 20.0 | 30.0 | - | ||||||||||
Provisions (A$m) | 0.1 | 0.1 | 0.0 | 0.0 | 0.0 | ||||||||||
Other (A$m) | - | - | - | - | - | ||||||||||
Total liabilities (A$m) | 0.4 | 0.6 | 20.8 | 33.7 | 3.7 | ||||||||||
Shareholders equity (A$m) | 16.6 | 16.0 | 14.8 | 22.4 | 43.0 | ||||||||||
Liabilities + equity (A$m) | 17.6 | 16.6 | 35.5 | 56.1 | 46.7 | ||||||||||
Attrib. net income (A$m) (17.6) (2.5) (4.9) (9.0) 20.6
Valuation sensitivities (A$/sh) to LT Bauxite Price CIF China | |||||
To discount rate | 45 | 55 | 65 | 75 | 85 |
12% discount 10% discount 8% discount To NAVx @ 10% | (0.03) (0.03) (0.04) 45 | 0.07 0.08 0.10 55 | 0.16 0.19 0.23 65 | 0.25 0.29 0.36 75 | 0.33 0.40 0.49 85 |
0.30xNAV 0.40xNAV 0.50xNAV | (0.02) (0.03) (0.04) | 0.06 0.08 0.10 | 0.14 0.19 0.24 | 0.22 0.29 0.37 | 0.30 0.40 0.50 |
Source: GMP estimates; Company data
2.5
2.0
Bauxite Hills (Mt) Cash cost FOB ($/t) CIF break-even cost ($/t)
70.0
60.0
50.0
Equity Research
The information contained in this report is drawn from sources believed to be reliable but the accuracy or completeness of the information is not guaranteed, nor in providing it do GMP Securities L.P., GMP Securities Europe LLP or GMP Securities Australia Pty Limited (collectively referred to as 'GMP') assume any responsibility or liability whatsoever. Information on which this report is based is available upon request. This report is not to be construed as a solicitation of an offer to buy or sell any securities. GMP and/or affiliated companies or persons may as principal or agent, buy and sell securities mentioned herein, including options, futures or other derivative instruments thereon. Griffiths McBurney Corp. ('GM Corp.'), an affiliate of GMP accepts responsibility for the contents of this research subject to the foregoing. U.S. clients wishing to effect transactions in any security referred to herein should do so through GM Corp. GMP Securities L.P. will provide upon request a statement of its financial condition and a list of the names of its Directors and senior officers.
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