29 Metals General Discussion, page-29

Looking at 80c target
Research09 October 202329MetalsOn the road to recoveryKey Points• 29M's share price is at all time lows since its IPO in July 2021 butbalance sheet risk has declined after its A$151m equity raise.• 29M is well capitalised to continue Capricorn recovery plan and hassignificant upside at spot prices - CY24 EV/EBITDA & FCF yield of 2.2xand 19%.• After a period of restriction, we resume coverage with an OP.• Strong upside at spot prices: 29M has strong upside to spot priceswith our base case CY24 EV/EBITDA and FCF yield at 5.8x and (1%),improving to 2.2x and 19%, respectively, using spot prices. 29M couldprovide significant leverage in a rising copper price environment.• Balance sheet derisked: Post the equity raise 29M has cash of A$278m and drawn debt of A$247m for proforma net cash of A$31m.Additionally, 29M has altered its Term Loan Amortisation Profile withrepayments of US$32m in CY23, US$25m in CY24, US$21m in CY25,with the largest upcoming payment of US$60m due in CY26, alleviatingshort term balance sheet pressure.• Capricorn recovery underway: 29M is part the way through a recoveryplan at Capricorn with Mammonth back in production, ore processingunderway, and Esperanza South expected to restart by 2QCY24. Weforecast that 29M is adequately capitalised to continue its Capricornrecovery plan with recovery costs of A$36-51m (Macq A$43.5m) in2HCY23 and A$17-20m (Macq A$18.5m) in 1QCY24.• Significant resource inventory: 29M has two fully permitted coppermines, both of which have a significant resource inventory whichunderpin a mine life of+15yr at Capricorn and +18yr at Golden Grove.Outside permit amendments required for increased tailings capacity atCapricorn, 29M has two fully permitted copper mines both of which haveexcess milling capacity.Earnings changes: Incorporating the A$151m equity raise (~45.5%additional shares) largely drives 46-52% EPS upgrades in CY23-CY24, CY25EPS changes from positive to negative off a small base, and CY26 EPSreduces ~42% due to additional dilution.Valuation: We also incorporate some minor changes to our production,opex, and capex estimates at Golden Grove and Capricorn. No change toour valuation methodology of 50/50 Blend NPV and 5.0x EV/Ebitda.Catalyst: September quarter production results on the 25th of October.Investment Thesis and RecommendationResume coverage with Outperform: The balance sheet concerns wereone of the key issues facing 29M, which have been alleviated by the equitycapital raise. Today's price could provide an attractive entry point forinvestors looking for a cheap entry point for a company with LT copperexposure.