28 August 2015
UBS 12-month rating: Buy
12m price target A$0.44 Prior: A$0.55
Beadell Resources
A difficult H1 and mine plan uncertainty remains
Event: Half year financials
Beadell has reported a messy, interim loss of $30m that included a $16m impairment
(related to the magnetic separation plant) leading to an underlying loss of $14m and
worse than our forecast loss of $5m. Underlying EBITDA of $3.6m was largely in line
with our forecast for $7.2m. Free cash flow for the half year was an outflow of $11m
but was better than our forecast outflow of $32m. Beadell finished the year with cash
of $18m and net debt of $69m leading to gearing of 30%.
Impact: Forward commentary suggests CY16 to be weaker than prior guidance
Guidance for CY15 remains unchanged with H2 gold sales expected to be 85-100koz,
although 20koz is dependent on third party approvals for Duckhead. We note that
there appears to have been a downgrade to CY16 expectations. Today's report states
that a new LOM plan contains a further 6-yrs of open pit mine life producing between
160-180koz from January 2016. This compares to the company update in April that
showed a production schedule with 2016 at 209koz followed by a range 174-188koz
per annum between 2017 and 2020. In our view, it is these frequent changes that have
eroded investor confidence in Beadell.
Action: Buy maintained - Confidence slips even further
We maintain our Buy rating based on valuation, but our confidence continues to slip.
From an operational perspective, this was a poor half. Issues with weather and material
movements saw output significantly below expectations and all-in sustaining costs at
US$1065/oz, resulting in very poor margins and a downgrade to full year guidance.
Management maintain a positive stance on H2 and, in our view, delivery on this is
essential for both credibility and renewed investor interest. Completion of the Urucum
Deeps U/G Scoping Study is expected before year end; perhaps this provides a catalyst
for investors to re-engage, or for corporate interest to lift.
Valuation: $0.58/sh (DCF, 9.5% discount rate)
Both our valuation and 0.75x P/NPV based price target have been reduced by 20%.
Investment case
We maintain our Buy rating based on valuation, but our
confidence continues to slip. From an operational perspective,
this was a poor half. Issues with weather and material
movements saw output significantly below expectations and allin
sustaining costs at US$1065/oz, resulting in very poor margins
and a downgrade to full year guidance. Management maintain a
positive stance on H2 and, in our view, delivery on this is
essential for both credibility and renewed investor interest.
Completion of the Urucum Deeps U/G Scoping Study is expected
before year end; perhaps this provides a catalyst for investors to
re-engage, or for corporate interest to lift.
Upside scenario
Other than gold price, mine life extension has the one of most
immediate upside potential. Adding an underground
development, producing circa 100kozpa over a 7-year period,
would add ~A$0.12/sh to our NPV.
Downside scenario
Should gold price sentiment weaken, investors will likely be
unwilling to pay for exploration upside. Removing this
component from our valuation would reduce our NPV by
A$0.13/sh.
Upcoming catalysts
September quarter production – October
Urucum U/G Pre-Feasibility Study – December half
Business description
Beadell Resources key asset is the 5.3Moz Tucano Gold Project
in Brazil. After converting the mine from a heap leach with the
construction of a CIL plant, production commenced in
December 2012. Gold sales in 2014 totalled 165.7koz with allin
sustaining costs of US$922/oz. Guidance for 2015 has been
provided at 170-190koz at AISC of US$810-890/oz. Beadell
estimates reserves (end-2014) at 1.3Moz using a US$1,050/oz
gold price, which implies a six-year mine life. It is completing a
Pre-feasibility Study looking at an underground development of
the Urucum Deeps project, which could potentially extend the
mine life.
Industry outlook
Short term: Macro forces especially from the US and a stronger
dollar weigh on gold, but prices are supported by safe-haven
bids amid uncertainty in Europe. XAUEUR potentially offers
better prospects. Longer term: Expectation of stable economic
activity & Fed normalisation weigh on gold; key price factors:
changes in policy expectations (especially US & Europe),
competition from other assets, & physical demand (China &
India).
UBS are forecasting as follows:
Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 1 Highlights (A$m) 12/13 12/14 12/15E 12/16E 12/17E 12/18E 12/19E 2 EPS 0.14 0.02 (0.02) 0.04 0.07 0.07 0.08 3 DPS 0.00 0.01 0.01 0.02 0.04 0.02 0.02 4 Net (debt) / cash (91) (105) (54) 13 83 150 234 5 P/E (diluted) 5.5 31.9 (8.9) 3.2 1.9 2.0 1.8
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