w27 the 22 page report was based on the known data and did not...

w27 the 22 page report was based on the known data and did not plan for what the reserve may eventually become. The key points are:

Restructured Board focussed on unlocking the value of the operating Mineral Hill Mine over the next 12 months, and getting the Sorby Hills lead/silver project development ready
 Mineral Hill operations successfully streamlined to improve productivity, and set the platform for future improvements
 Balance sheet to be restructured to manage debt and provide development capital
 Developments to include the installation of a CIL plant, with design well advanced and development expected in late 2014, which will
allow mining of the high grade Pearse gold/silver open cut
 Sorby Hills is largely permitted, and will be ready for advancement by year end to follow on the back of success at Mineral Hill
 Valuation of $0.236/share undiluted

BBY view KBL Mining as a potential turnaround story, with significant upside in the share price. Since listing in 2008 the Company has not been without its issues, with the key Mineral Hill mine underperforming due to various reasons, and thus leading to poor price
performance and disillusionment amongst investors.However the Company has, over the last year or so, been undertaking activities to turn
performance around, with results starting to be seen, which is reflected in a 100% improvement in the share price since May 2013 and improving financial figures. These include significant cost cutting, with operating costs at Mineral Hill now at what we consider to be as low as they can be reasonably be.

The Company is also addressing the other key aspect of financial performance, increasing revenue. A key development now is the delayed installation of the CIL plant and development of the Pearse gold/silver deposit, with these expected to significantly increase cashflow over the next few years. In combination with the recently installed lead circuit our view is, all going well, Mineral Hill has the potential to start producing significant cash, and with the reinvestment of some into judicious development turn the mine around from the current hand to mouth
operation to an operation with the flexibility to handle any issues that may arise. The additional treatment options will also open up new areas for economic exploitation, and this, combined with the recent (and hopefully future) exploration successes have the capacity to significantly increase reserves and hence mine life.

A key hurdle however in achieving the above is renegotiating existing debt and drawing down new debt to fund development of the CIL plant and Pearse – this is critical, and any such funds do need to be used for these developments.At Sorby Hills KBL has, with their JV partner, a potentially long term lead/silver operation. Detailed work has been limited to only around 26% of the known mineralisation, with the PFS and our valuation based on this. As it stands this is not a compelling story – although the pre-tax and financing NPV is positive, the results are very sensitive to changes in key parameters including metals prices and exchange rates, largely due to the relatively low grades and short mine life.

However there is significant potential, with minimal drilling, to significantly increase the reserve base, which would potentially result in a much more robust investment case. The Company will be looking at all options in the upcoming PFS, due to start in early 2015.
As such we rate KBL as a short to medium term Speculative Buy