Euroz Research Note

	Column 1	Column 2	Column 3	Column 4	Column 5
0	Finders Resources Ltd (FND $0.17) Buy Column 1 0 Analyst	Date	Price Target Andrew Clayton	22/9/16	$0.30/sh

Hedge restructure and Operations updateInvestment CaseThe hedge restructure to net US$42.3m and reduce debt by 30% is a real value adding step and should be well received by the market. Our valuation has increased by 15% to $0.31/sh, reflecting our lower hedge value (due to higher price assumptions) than what FND achieved. FND forecast it will be at nameplate capacity of >2kt of Cu per month by Oct’16 and at this time should be strongly cash flow positive. We maintain our Buy with debt reduced to more manageable levels and on the cusp of strong cashflow we believe FND should re rate. Key Points · FND has closed out 21.6kt of Cu hedging and re – struck the forward selling price on 16.4kt from US$5,912/t to $4,806/t.· Total proceeds of US$42.5m have been applied to debt repayments reducing the outstanding balance to US$103m – including US$12m of VAT loan facilities which are expected to be repaid from the proceeds of VAT refunds.· Discussions are underway with the banking syndicate to amend the current debt facilities to reflect this hedge close out. · In its recent presentation FND report that +3kt of Cu has already been stripped and the forecast for Sept is ~1.75kt before reaching nameplate design of ~2kt per month in Oct’16. · The Dec ‘Q will give a good indication on how costs are tracking compared to feasibility estimate. · At nameplate capacity we expect FND will be strongly cashflow positive with AISC forecast to be US$1.20-1.30/lb.Analysis With operations close to nameplate capacity, FND has taken a real value adding step in closing out part of its hedge and restructuring the balance to reduce its overall project debt by 30% to a more palatable US$91m (net of VAT loan).Whilst we have confidence in the operations, a gearing level of >50% was viewed as a negative for potential investors.There remains considerable exploration upside and a 35 holes drill program at Lerokis is slated to start shortly. In addition, Meron, located 1km from the leach pads is an excellent target with a 42 hole program planned. Previous intersections of 37m @ 1.14% Cu and 0.49 g/t Au auger well and FND believe this is a +5mt target. We have always rated the exploration potential highly - both the near mine and regional targets. There are also underexploration areas on the south coast which have a similar geological environment to Kali/Kuning/Lerokis/Meron. We believe there is a good possibility that ultimately a +10yr life can be define with the ultimate target of discovering sufficient resource to justify a plant expansion. This hedge close out has resulted in our valuation increasing from $0.27/sh to $0.31/sh. We had previously valued the hedge book at +$9m (as our assumed Cu prices increased to US$2.75/lb in CY’18 and US$2.95/lb in CY’19). The current hedge book is now valued at -$12m but importantly the debt has reduced from A$193m to A$137m.The close out will see FND more exposed to the spot Cu price without the protection of hedging at US$2.70/lb but with operations now within weeks of reaching design capacity and forecast costs to be US$1.20-1.30/lb we are positive on this action.We forecast in C7’17 FND can produce 28kt of Cu @ AISC of US$1.29/sh and generate NPAT of $35m and operating CF of $77m. We maintain our Buy and increase our Price Target to $0.30/sh post this hedge close out and debt repayment. With FND on the cusp of reaching design capacity and ensuring free cash generation we believe it is prime for a re rating. [/table]