Hartleys Research Paper 4/6/2010
Share Price $0.048
Valuation $0.080
Price Target (12 month) $0.092
Focus Minerals Ltd (Focus, FML, Company) has successfully completed the ramp-up of its Three Mile Hill mill, with recoveries of 90% now approaching 95% compared to 90% in the March Quarter. The Company has achieved mill throughput capacity of 1.2Mtpa (100kt/month), while maintaining profitability during ramp-up. Resource delineation and extensional activities have also paid off for the Company with both Reserves and Resources (R&R) expanding the gold inventory. Reserves for FML is now stated at ~187koz Au, an increase of over 100Koz Au since October 2009 and an addition of over 150koz Au in the past 12 months (over mine depletion). Resources have increased by over 250Koz Au during the same period to be ~1.98Moz Au, soon to reach the 2Moz Au milestone. A three year Reserve position or over 300Koz is currently being targeted, which will de-risk the mill feed requirement and extend mine life. The recently announced 80% increase in gold Resource at the Cyanide Deposit adds over 50Koz to the Tindals Mining Centre (TMC) which now contains ore with mining potential of over 320Koz gold. The good news for the Company is that the Cyanide Deposit remains open along strike and at depth.
The Mount Set to Become Second Mining Centre
The Mount continues to grow from an early stage exploration project to become the second mining centre for the Company, set to deliver a forecast ~60Kozpa Au once developed. Development, through trial mining has already yielded 400oz per vertical metre which has provided the confidence for FML to move forward and begin to evaluate more aggressive mining models. Focus announced in April a maiden Probable Reserve for The Mount of ~19Koz at a good grade 8.6 g/t Au and contains an additional 370Koz in Resource. An estimated 10Koz of gold will be mined from The Mount in 2010.The Mount complex has a current footprint of over 300m, but it remains open at depth and along strike within multiple lines of lode. The Mount is considered a potential company making deposit and ongoing exploration and development work will determine the best extraction methods for its anticipated acceleration into full-scale production. We see The Mount development as being critical to the growth aspirations of the Company.
Model Adjustments Improves Valuation
The R&R additions already have had positive impact of our Coolgardie Gold DCF10 valuation with an effect of improving the confidence in mineable Reserves and Resource conversion which adds to the estimated mine life. Further gold inventory improvements, particular in Reserve growth will continue to increase our valuation. The Company has maintained its production guidance for CY10 of 80Koz Au and we have adjusted our FY10 production forecast down to ~62Koz Au due to the higher than expected impacts of the La Mancha ore toll treatment. We estimate production for the next two quarters to be well down on the record March production Quarter, setting the Company up for increased production in the December Quarter. We continue to rate Focus Mining Limited as a Speculative Buy.
Kommentar zur Empfehlung von Country Writer aus dem Hot Copper Forum
thanks informativeation, good find.
I dispute their 62k oz for FY 2010 perhaps a bit understated I think they will get close to the 70k oz predicted - at least closer to that than 62k. This is part of their conservatism which, in mining is not a fault by any means.
The exciting thing is that Hartleys have a really excellent reputation, and that is not a light statement. The fact that they are now "on board" with FML means they they have sat back, analyzed this stock with a fine toothed comb and watched what FML have done. Not just what they have said they would do. Here you see the strategy of under promise and over deliver really pay off.
Now next FY we can see capacity for 1.1Mt FML ore and 100kt Whitefoil.
Rising quantities of Mount ore at 8.6gpt...
Head grade of 4.5gpt from Percy and Tindals...
1.1Mt PA @ average 5.5gpt and 95% recovery...
That's 185k oz Au sorry this must be too optimistic.
What will the average grade be? If we factor 5gpt and less than perfect mill throughput say 1Mt - remember stuff happens when you feed this much rock through machinery - we get 5m grams at about 95% recovery we still get 153k oz of Au.
At an optimistic cost of $700 per oz - optimistic not impossible - and a gold price average of $1400 (conservative) we see a gross profit of $107M.
Take out $10M for exploration and all the other costs to run and grow the show and we could see a net profit in the order of $40M. With increased valuation based on acceptable Reserve ratios and LOM we could see a PE of 10 and that means a market cap of $400M and a share price of around 14c.
Factor in more ore or a higher grade - or a higher gold price and we go up from there. Any major problems and we get less but less than 4.7c???
Factor in a rampant gold stock spike stock and 20 to 30 PE is not over the top what SP then??
Think I will add during any weakness :-)
What are others thoughts and projections?
I base my investment decision on the base case to be conservative and have exit strategies for my initial capital deployment ...which I stick to.
Cheers,
CW
DYOR
Noch ein guter Beitrag!
Yes you are right there were other companies before at the Mount including WMC in the mid 80's who had an option and drilled 12 holes, the deepest being 35m and they all hit high grade or stopes. What were they thinking as all the lodes are exposed over at least 600m at surface and rock chip sampling averaged 9g/tAu, not they bothered to do geology 101 and map and sample the obvious. Aur next picked it up and sank a shaft to the 3 level before going into receivership with their New Zealand alluvial operations pulling them down.Perhaps you were working for Aur when you got the call from the desparing share holder. A private miner bought it from the receiver, and worked it for 10 years, shrink stoping the main lode, the one east and the one west quartz veins. He conducted no drilling just drove on the reefs. Focus bought it in 2003 and the surrounding ground in 2004; several million dollars later it now has 250koz resource to an average depth of 100m totally open to the north, south and at depth with the deepest hole yet drilled intersecting 2m@25g/t on the main lode in the center of the system at 250m depth. To me having found several company makers "The Mount" is a company maker. Focus has 4 company makers, the Tindals/Dreadnought system,the Lindsays/Baileys system,The Mount system, all of which have demonstrated the potential to be multi million oz deposits and finally the Nepean Nickel System which is a dead ringer for Western areas Flying Fox. I understand your cynicism regarding Goldies but you surely must understand if you have been in the game for as long as you claim that this game is played like any other business and the players are either winners based on talent or losers or just plain cheats. Focus is if anything professional it never overstates and the Mount has been understated.
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