Highlightsfrom the PFS Document
High-grade13 year Starter Pit
▪ Phase 1 of mining operations at Bawdwin, a13 year Starter Pit, will set Bawdwin up to be a world leading producer of leadand silver as well as a significant zinc producer
▪ 24.7Mt of mineralised material will be mined and processed, grading 6.4% Pb, 168g/tAg and 3.2% Zn, while leaving the bulk of the Bawdwin project Mineral Resourceun-mined
Strongproject economics
▪ Robust Starter Pit economics with a precorporate tax Net Present Value (8% real discount rate) of US$ 580 million / A$828 million (100% basis)1 and Internal Rate of Return of 30%
▪ PaybackPeriod of 4 years
Lowcost operations
▪ Low capital expenditure, US$ 267 millionwith additional US$33 million of contingency, for delivery of world classproject
▪ Totaloperating costs of US$ 108 / t processed, within the lowest quartile of costcurve
MaidenOre Reserve declared
▪ Declarationof maiden JORC Probable Ore Reserve of 18.4 Mt at 6.4% lead, 169g/t silver and3.4% zinc representing 74% of the total production from the Starter Pit
Re-developmenton track
▪ Delivery of PFS now enables offtake andproject financing discussions
▪ Potential to commence pilot scale miningoperations on the Bawdwin Mining Concession in 2019 ahead of full scale miningoperations in 2021
▪ Scopingstudy on the first two underground mining operations is underway
My summary:
Based on data from S&P Market Intelligence,the below is a graph of the world’s top 10 lead miners. I’ve added Bawdwin projectedproduction from stage one and also an approximate value for Bawdwin if 100% ofknown current resource was being mined. While this last projection is off inthe distance it does reinforce how prospective this project is and how enormousthe potential is (and hence why I have been so excited by it for the past year).It also does not include any value (yet) for any of the other minerals thatwill likely be mined in later stages (copper/cobalt/nickel).
As is plainly illustrated, Bawdwin has thepotential to grow to become approximately 3 times larger than the world’scurrent largest lead miner once the stages that are currently going underscoping study are brought on line. Keep in mind that MYL are unlikely to waitany longer than necessary to bring these additional revenue streams on-line.
In addition, the story is similar for silveras a standalone;
Combining the scenarios above its is apparenthow strong the investment case is for Myanmar Metals. In addition, there is 555,000tonnes of Zinc in the stage one pit, approximately 2 million tonnes in theknown reserves. LME cash price for zinc is US$2850 or A$4092 per tonne. The stage 1 pit will produce A$ 2,271,535,714 value of zinc. The longer-term potential four times that. In short, the economics of the project are outstanding and the potential for future growth is arguably the best (or one of the best) available in a polymetallic mining operation worldwide. Of course, MYL have not yet looked at the additional value to come from the more valuable ores. That data should continue to build over the next 12 months and beyond. Bawdwin is rapidly proving it’s claim to be a VMS styled mining region rather than just an outstanding deposit. The EM geophysics have proven very reliable in targeting new discoveries and more is to come over the current known 8 to 10 kilometres of strike. In addition, there is substantial additional ore that will be added to stage 1 between PFS and DFS (10%? ), some of it already discovered but after the cut-off point for the PFS study. There will also be reduced waste due to the additional ore and a refining of engineering studies to increase pit wall angles where appropriate. In other words, the economics of stage 1 pit are extremely likely to improve further and the market can now have increased confidence about what to expect. I also believe DFS costs likely to drop somewhat as studies are completed.
Capital Costs:
- “Lowcapital expenditure, US$ 267 million with additional US$33 million ofcontingency, for delivery of world class project.” This is only modestly dearer than the scoping studies but production targets have also been lifted from 1.8 million to 2 million tonnes per annum. I would also expect that once commissioned we might see some upside on those rates.
Maiden Reserves Statement:
- "24.7 Mt of mineralised material will be mined and processed, grading 6.4% Pb, 168g/t Ag and 3.2% Zn, while leaving the bulk of the Bawdwin project Mineral Resource un-mined". One of the highest grade reserves on the ASX and it includes less than 26% of the currently drilled resource. The reserves will undoubtedly grow. This will be glossed over but it is an extraordinary set of numbers. It represents billions of dollars that will be first quartile on costs and able to weather any price fluctuations.
Process plant:
- preparation will include room for extendingthe facility at a future date.
- Pit life currently 13 years but strongprobability that this will grow as post December 2018 drilling results not usedin calculating ore reserves. This resource in turn, only represents 26% ofknown resource which will undoubtedly grow. With a payback period of under 4years, I’d expect a plant duplication strategy would be considered possibly inyear 2 or 3 once steady state production was achieved and economics proven.
Water:
- Primary supply Nam La creek and secondarywater supply from the underground workings via Marmion Shaft, if required.Personally, I like the idea of de-watering the old underground workings as aprelude to future opportunities. Traditionally, the old Chinese miners werehunting silver so when cooper/cobalt/nickel ores were hit they left thembehind. While future underground stages will take care of the de-watering thereis an advantage in starting early.
Electricity supply will be a predominantlyGrid supplied:
- a new 22 km 66KVA line and switchyard
- Up to 9 MW of power may also be availablefrom the existing hydroelectric power facilities upon refurbishment (owned by Bawdwin Joint Venture).
- Select diesel backup for critical plantduring any stoppage and for mill startup.
Transport and roads:
- The road to Bawdwin from Namtu will bewidened in some locations and passing bays will also be developed. Namtu toLashio road to be further evaluated during DFS study. It will be handy that oneBawdwin joint venture partner is a leading road builder and bitumen supplier inMyanmar while the other is a major plant operator.
- Road freight initially for the high gradeconcentrate and rail a probability when the Mandalay-Rule line is built (Belt andRoad Initiative project which has just completed it’s feasibility study).
“ChinaRailway Group Ltd presented Myanmar’s Ministry of Transport &Communications with its technical feasibility study for a 431 km rail link fromMandalay to the Chinese border at Muse”
https://www.railwaygazette.com/news/news/asia/single-view/view/rail-agreements-reached-at-the-belt-road-forum.html
Tailings:
- A dry tailings facility. No dams created hence mitigating against future problems. “…an Integrated Waste Landform (IWL) that integrates the filtered and dried tailings abutting to the waste stockpile, which is contained within the Concession and adjacent to the processing facility”
NPV on Stage 1 pit:
- NPV (8% discount) pre corporate tax but postprofit sharing with both the government and joint venture partners is projectedto be A$422 Million. On a fully diluted basis, assuming 1.5 Billion shares onissue, this gives an NPV per share of A$0.2815c. Extrapolating out for currentstated resource, this puts (very approximately) a price target of A$1.12 pershare. There will of course be continuing growth in the resource. There will also be a modest further dilution at some point but I expect the growth in resource (especially in copper/cobalt/nickel) to more than compensate for this. Finding finance for a mine of this quality and magnitude will be a matter of process only.
Scoping studies x 2:
I would expect these scoping studies to bepublished within a few months and this will both increase certainty anddemonstrate the economic uplift from bringing on line the greater part of theknown resource. The PFS for China pit is just the ‘starter pit’ and willquickly be followed by an expansion that will be funded from cashflow. The economicreturns from each of the underground loads beneath Shan and Meingtha deposits willlikely be larger than the economic return from the starter pit. They will requirevery little capital in comparison to the starter pit and the processing plantwill have already been funded. The economic returns are likely to be very substantial. It is not unreasonable to expect verysignificant uplifts in the resource size. A doubling or more of the currentresource is very possible because of the geological properties of VMS regions. YegonDeeps in particular, appears to have the potential to replicate the originalChina load. It could be massive and VERY HIGH GRADE. There may well be aresource that is copper/cobalt nickel rich and hold as much metal as thecurrent total resource. Then the China pit deeps, which is yet to be drilledhas enormous potential as well. We should get insight over the next 12 monthsfrom exploration.
What is my target and why?
I believe that the next 12 months as weapproach decision to mine and negotiate both off-take and finance deals willsee increased awareness of Myanmar Metals’ potential. The increased certainty includingaround mining economics, the receipt of environmental approvals, the deliveryof the DFS and the ongoing negotiations on off-take and finance will motivatethe share price higher. The market will now be looking at an ASX listed companythat is leading the charge into highly a prospective region, and as Argonautnoted historically, “…Argonaut regards Bawdwin as a regional play, with thecurrently defined resources likely to grow …MYL has embarked on an explorationprogram to test the 8-10km strike length of prospective geology/structures,which is littered with exposed metalliferous gossans and historic adits. It isfeasible that repeats of the three known lodes will be discovered …”
The financial return to the Myanmar governmentfor the starter pit alone is projected to be A$2 Billion from the profit shareagreement. Company tax is a flat 25% on top of this but MYL have the potentialof up to a 7 year company tax holiday. The upcoming scoping studies on the firsttwo underground projects will help to put this in focus for the government andinvestors. The government’s profit sharing agreement alone has the potential todeliver up to A$8 Billon over the next 50 years based on currently definedresources for the Myanmar people. This is an incredible incentive for thegovernment and may also see some of the western funds decide that the sovereignrisk worries are over inflated. If the Western funds do not come to thisconclusion I’m personally confident the Asian funds will be more than happy to participate.
Given the propensity for this project to continuegrowing resources at 50% per year I think it is reasonable to have a valuation of$1.12 for May next year when the decision to mine is planned and a 12 month forwardprice target of 75c. In addition, the upside of having full infrastructurepre-paid for future stages will be of considerable value and make those stagesvery profitable. Even without increasing plant size, the increased grade fromunderground will eventuate in greater production in time. Increased grade andlesser waste in the stage 1 pit would have the same effect and given the currentresource does not take into account exploration post mid December 2018 I expecta 10% greater resource and higher NPV by the DFS release. A typical analysiswould have a lower target and valuation pre the scoping studies release but theinevitability of continuing discoveries and the high probability of take overtalks leaves me reluctant to be so conservative.
Will we go mining or get taken over? I suspect a take over mid year 2020 is a strong possibility. Perilya for one will have very good insight into the project and their standstill agreement expires then. I’m sure there will be other majors very interested in what will become one of the worlds most productive polymetallic mines for the second time in its long history. If there is a take over attempt it may turn into an auction. Given the relatively strong holdings of Mark Creasy via Yandal, MYL management and the PIG group, I would expect at least fair value in any take over. If there is no take over share holders will own a company whose major project could grow over time to rival the Broken Hill and/or Mt Isa regions.
