Altona Mining - Hartleys Research Preisziel: 0,33 AUD
ALTONA MINING LIMITED (AOH)
SRIG JV signed, fully funded for 34% of Little Eva
Altona has concluded negotiations for a binding agreement with Sichuan Railway Investment Group (SRIG) whereby SRIG is to contribute US$213.5m (A$295m) cash and AOH is to contribute the Cloncurry project and US$25m (A$35m) of cash. Altona is to hold 34% of the Joint Venture company and SRIG the remaining 66%. The terms of the agreement differ slightly from the framework agreement with AOH’s cash contribution (reduced from US$38m to US$25m) and AOH’s project interest (reduced from 40% to 34%). The JV will be fully funded into production with a cash position of ~A$330m and a pre-production capex requirement of ~A$294m for the Cloncurry project (2014 DFS estimate).
Altona’s 34% interest is equal to annual production of ~13ktpa Cu & ~6kozpa Au (~15ktpa CuEq) and generates EBITDA (attributable) of ~$20mpa at spot prices and ~$40mpa at consensus prices. We now model the Cloncurry project to commence production in FY19 with a minelife of ~15 years. Our (pre-tax) spot valuation for AOH’s share in the Cloncurry project is A$89m (22cps) and our base case (consensus) valuation is A$190m (35cps)With the (operating and capital) cost environment improving significantly since the DFS was completed in 2014 we expect a reduction in the operating costs and pre-production capex requirements for the Cloncurry project. We expect a surplus cash position of up to ~A$60m (~A$20m attributable to AOH) within the JV company after the pre-production capex requirement. The JV has an agreement to return a minimum of 50% of surplus cash to shareholders through dividends.
As well as the continued propensity to return cash to shareholders we see a strong likelihood AOH will use the SRIG deal as a platform to generate further deals whereby the Company will look to acquire base metals development projects at the current depressed (bottom of the market) prices. AOH now has a well-funded partner to collaborate with and take advantage of the cyclical downturn in base metals and build a Company ready for the next cycle.
What’s next in the process? When can we mine the Cu-Au?
The agreement with SRIG will now be submitted for Chinese regulatory approval and on receipt of the approval SRIG and AOH will execute the Subscription Deed. Regulatory approval is estimated by September ‘16 with SRIG looking to execute the Subscription Deed before the 1st October 2016. The closure (drop dead date) and satisfaction of all conditions precedent is targeted for 31st October 2016. We estimate the JV will look to commence development of the Cloncurry project (with AOH as the initial manager) in mid- CY17 and after a ~18 month build time we model first production from the Cloncurry project to commence in early-CY19.
Significant value remains, maintain Speculative Buy
We continue to see good value in AOH particularly for investors willing to take a view beyond the current market conditions. We expect a further re-rate as AOH finalises the JV deal over the coming months and further share price appreciation as the Company moves the Cloncurry project into development (in mid-CY17) and production (in early-CY19). We maintain our Speculative
Buy recommendation and a price target of 33c per share, NAV of 36c, spot
NAV of 22c.