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Hartleys Research: Altona Mining price target 0.33 AUD

Hartleys Research gives Altona Mining a price target of 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).

No funding gap, lower capex = surplus cash = more dividends

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. 

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PDAC 2019

Always up to date with the newsletter from SRC

Swiss Resource Capital AG will use the information you provide in this form to keep in touch with you and to provide you with updates and marketing information. To receive our news, you still have to give us permission to send you E-Mails below.

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