IVR Research
Investigator Resources (IVR) Targeting Silver Production From Paris
22 August 2016
Andrew Shearer [email protected] +61 3 8633 9862
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Key Points
IVR’s focus has shifted from exploration to now commercialisation of the Paris silver deposit. A recent well supported capital raising now provides IVR with cash to commence feasibility studies. Most of the capital raised will go towards Paris with limited focussed exploration.
IVR is leveraged to not only the advancement of Paris but is also one of a very limited number of ASX silver plays.
The next steps for IVR will be infill drilling at Paris to enable feasibility modelling and also exploration drilling.
We continue to see IVR as well positioned to add value and become a significant silver company.
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Strong Track Record
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Strong Track Record: We have followed the IVR story for a number of years from discovery in 2011 of the high grade Paris silver deposit, located in South Australia, through to resource delineation. What has happened since we last wrote on IVR in 2014? Extensions of the Paris host geology defined, highlighting the upside potential. Increased silver resource from 20Moz to 33Moz (+65%) and also increased ownership of Paris to 100%Production Focus: The greenfields discovery and delineation of a new mineralised district highlights the technical skills of the IVR team. Now that the silver resource has increased to a size that will support feasibility studies IVR has decided to focus on bringing Paris into production, as soon as possible. We see the shift in focus by IVR as positive for the growth of the company.Possible production options: IVR have identified that silver production can be either in the form of dore (higher value product; lower transport costs) or a concentrate (smaller footprint, lead recovery, likely lower capex, local ports). With both based on a shallow high grade open cut operation, and a modular approach to the plant so that production can be scaled up. The PFS will determine the best optimum scenario. Paris versus Peers: In comparing Paris to a number of ASX peer deposits the grade is the key differentiatorFocussed Exploration: Whilst the exploration potential for not only silver but copper and other metals remains high IVR have put a line in the sand and will only drill a limited number of key targets in 16/17.Background: Investigator Resources Ltd is a junior metals company targeting silver and copper/gold mineralisation, focussing on the southern Gawler Craton of South Australia. The main prospect within the Peterlumbo Project (100% IVR) is the Paris Silver Deposit, 8.8Mt at 116g/t silver, containing 33Moz silver.
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Recommendation
Buy
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Previous Recommendation Risk RatingCurrent Share Price12 Month Price Target Price Target Methodology NAV Valuation (un-risked) NAV Valuation (risked) Market capitalisation Liquidity – Daily ValueReinitiating High $0.032 $0.08 Risked NAV $93m ($0.16/sh) $49m ($0.08/sh) $19m $0.1m
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Investment Summary
IVR have a solid base at Paris which they can now build on as they focus on bringing Paris into production. With two production options and an identified water source they are well on the PFS path. The recent capital raised will be used towards the PFS and targeted exploration.
The opportunity for IVR is to actively market the Paris production and gain market appreciation. With a resource grade ~ double that of SVL and WRM the operating costs are likely to be lower, grade is king when it comes to mining. There are limited ways to play silver on the ASX and IVR is a well credentialed silver company with growth potential.
Catalysts – News flow
Drilling at Nankivel copper target – commenced with results likely end Sept Qtr
Infill drilling at Paris to provide metallurgical results and improve resource classification. Starting in September and continue for ~1.5 months.
Resource reclassification release late CY16 – early CY17
PFS results 2HFY17.
Recommendation: we reinitiate coverage on IVR with a Buy recommendation, High Risk, Price Target $0.08/sh
IVR share price performance
The information contained in this report is provided by PAC Partners to Wholesale Investors Only.
PAC Partners in its role as Lead Manager will be paid fees and may also be paid a success fee (See Disclaimer)
PAC Partners | Equity Research
Investigator Resources (IVR)
Resource: 8.8Mt @ 116g/t silver for 33Moz silver
Local infrastructure an asset
Paris Project Overview
IVR has defined a shallow high grade silver resource at the Paris Project and also shown that there is scope top increase the resource. The objective is now on bringing Paris into production.
The first stage is completion of feasibility studies at Paris, key milestones in this process include: infill drilling, metallurgical testing, definition of a water source and initial geotechnical studies.
Paris is located ~70km north west of the regional township of Kimba, access is along well maintained roads and close to infrastructure. IVR has established a field camp at Paris to assist with year round work with no seasonal climatic restrictions..
The project lies within a pastoral lease and is not within any restricted or environmentally sensitive regions. The majority of the project area is situated on one property, making access relatively easy.
Figure 1: Location of the Paris Project, South Australia. Source Company Presentation
A key characteristic of the resource is that a majority (>75%) of the high grade mineralisation is situated at depths less than 100m, making the deposit amenable to open pit mining methods. The soft host rock indicates soft-dig options. Another positive is the grade, at 116g/t silver Paris is one of the highest grade silver projects in Australia.
Path to production: IVR has identified two possible production options for Paris. Firstly undertaking the production of silver metal in dore and secondly the production of a silver-lead concentrate. The dore route produces a more valuable end product but has higher capital and approval requirements. The concentrate option is less capital intensive and relatively quicker to approve.
Shallow and high grade – a good combination
Two processing options
Both options will be modelled as part of the feasibility process.
Processing options
Production of silver dore on site
Producing a silver concentrate for sale to a refinery
Source: PAC Partners estimates
Positives
Higher sale price for silver produced
Customers of silver ingots more diverse than concentrate offtake customers.
Readily transportable Lower capex
Smaller environmental footprint, leading to quicker approvals
Uses less water
Possibility to recover lead in
concrete.
Negatives
Relative higher capital and opex costs More permitting required
Lower per unit sale price. Smaller pool of customers Transport costs
Water
Paris Extensions
A potential aquifer water source has been identified within ~12km of Paris that maybe suitable for the operation. The water appears to be too saline for competing stock use.
Testing of the water source will be undertaken in late FY17.
Step out drilling undertaken by IVR has identified a number of additional silver prospects on structural extensions to the Paris deposit
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PAC Partners | Equity Research
Investigator Resources (IVR)
Paris alone provides 3x- 5x current share price.
Paris Modelled
Whilst IVR have identified that a modularised approach may be taken to the development of Paris, we have modelled operations as a single 1.4mtpa plant with a ramp up period. Our approach is based on the early stage of feasibility studies into the project.
Our unrisked NPV for Paris is $89m ($0.15/sh) and our risked NPV is $44m ($0.08/sh). Upside to our valuation will be from an increase in recoveries, reduction in operating costs and an improving silver price.
Our headline assumptions are:
Paris Project Model Parameters
Production (MOz Silver) Silver Price (US$/oz) AUD:USD
AISC Cost (A$/oz)
Head Grade (g/t)
3.960 3.960 18.50 18.50 0.74 0.74 $15.4 $15.3 110.0 110.0
3.960 2.970 18.50 18.50 0.74 0.74 $15.4 $14.5 110.0 110.0
FY19
0.250 18.50 0.74 $21.2 110.0
FY20
2.530 18.50 0.74 $17.2 110.0
FY21
3.960 18.50 0.74 $15.8 110.0
FY22
3.960 18.50 0.74 $15.7 110.0
FY23 FY24 FY25 FY26
Plant throughput: 1.4Mtpa, with ramp up over first year Production rate at nameplate capacity ~4.0Moz pa silver Life Of Mine (LOM): 6 years
Timing: PFScompletedmid2017
BFS completed mid 2018 Construction – 9 months
First production April quarter 2019, ramping up in FY20 (Year 1) Total production 25.5Moz silver.
Source PAC Partners estimates
Paris Project Assumptions
Plant capacity
Ore Grade (g/t Silver) Recoveries (%)
Capex - plant
Capex – support infrastructure Sustaining capital
Opex (AISC)
Silver price US$
Silver Price (A$) Exchange Rate Recovery rates Production (Silver oz pa) Source: PAC Partners estimates
1.4Mtpa
110
80%
$30m
$10m
$1.6m pa
Year 1 - A$17.20/oz
LOM Average – A$15.50/oz US$18.5/oz A$24.30/oz
0.74
80%
~4.0Moz pa at nameplate capacity
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PAC Partners | Equity Research
Investigator Resources (IVR)
Modelled Paris Silver Production
Source PAC Partners estimates
Paris Project Modelled Cash Flows
FY19 FY20 FY21
Sales (Moz Silver) 0.25 2.53 3.96 Revenue (A$m) 6 63 99 Capex (A$m) (41.1) (1.6) (1.6) Cash Operating Costs (A$m) (3.4) (34.8) (54.6) Royalties (A$m) (0.1) (1.3) (2.0) EBITDA (A$m) 0.7 26.1 41.4 D&A (A$m) 0.7 6.9 10.8 Tax (A$m) - (3.5) (9.2) Free Cash Flow (A$m) (39.9) 24.7 32.6
Source: PAC Partners estimates
FY22 FY23 FY24
3.96 3.96 3.96 99 99 99 (1.6) (1.6) (1.6)
(54.6) (54.6) - (2.0) (2.0) (3.5) 41.4 41.4 40.2 10.8 10.8 5.4
(9.2) (9.2)
(10.4)
31.9 33.1 41.9
Valuation
Our sum of the parts valuation for IVR includes a NPV for Paris with a nominal amount for exploration potential.
SUM OF THE PARTS VALUATION
Paris Project Corporate
Debt
Cash
Exploration Potential Total NAV
Source: PAC Partners estimates
Un-Risked Value (A$m) $88 -$10
$0
$7
$8
$92
Risked Value (A$m) $44 -$10 $0.0 $6.5
$8
$48
A$/sh (un-risked)
$0.15 -$0.02 $0.00 $0.01 $0.01 $0.16
A$/sh (risked) $0.08 -$0.02 $0.00 $0.01 $0.01 $0.08
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PAC Partners | Equity Research
Investigator Resources (IVR)
The Nankivel prospect is located
~5km east from the Paris deposit
and is a copper-gold skarn and
associated porphyry targets. The
type of geological alteration at
surface, an underlying magnetic
body and anomalous zinc plus
copper intersected in shallow
historic drilling has been used by
IVR the define the Nankivel target.
Drilling commenced in August on
the target, with a 500m hole
planned.
Funding for the hole will be part
funded by the South Australian
Government under their PACE
initiative.
Prospect located in the main IOCG belt
Potential drill hole targeted using geological and geophysical modelling.
Exploration Targets
Nankivel Gold Copper Prospect
Maslins Project
The Maslins IOCG (iron Oxide Copper Gold) target is located on the Stuart Shelf region of South Australia, an area that hosts the globally important Olympic Dam Mine, plus also the Prominent Hill and Carapateena Projects.
IVR has identified a strong gravity anomaly which is modelled at a depth of 600-700m below the surface.
Given the depth of the planned drill hole (~1,000m) and the likely cost, securing outside funding will be an advantage for IVR in deciding to undertake the drilling. IVR is actively seeking JV partners for the project.
Diomedes Nickel Targets
The Diomedes prospect is located to the NE of Paris and is delineated by a soil sampling program and wide spaced scout holes, drilled in 2011 and 2014, has reported nickel values of up to 0.4% associated with ultramafic units. The results from shallow (`30 to 70m ) drilling are interpreted to be associated with primary mineralisation and not secondary (lateritic) enrichment.
The initial results reported by IVR are positive early stage indicators for the presence of nickel sulphides. The next step would be a series of deeper drilling to test the ultramafic rock units.
The identification of the nickel potential again shows the technical ability of the IVR exploration team. However given the current soft price for nickel we would see Diomedes as a good project for future consideration.
Major Shareholders
CITIC Australia Pty Ltd 67,097,772 11.56%
Recent Corporate Transactions
May 2011 Placement raised $1.1m at $0.051/share
September 2011 Underwritten Rights Issue raised $8.3m at $0.11/share July 2012 Placement and Rights issue raised $15m at $0.18/share August 2014 Rights Issue raised $4.6m at $0.04/sh
July 2016 raised $5.4m in an oversubscribed placement via the issue of 114.8m shares at A$0.047/share.
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PAC Partners | Equity Research
Investigator Resources (IVR)
So how does IVR compare to peers?
IVR has the second highest resource grade and one of the largest silver resources of ASX peers.
Peer Comparison
In comparing the Paris deposit with the resource of other ASX listed silver companies the main differentiator is that outside of PNX’s Hayes Creek Deposit the grade of Paris is well above the other ASX silver juniors
Of the half a dozen or so ASX listed silver plays we see that IVR, SVL and AZS stand out from the pack for either stage of project development or and/or exploration potential.
Silver Mines (SVL) has undertaken a roll up of a number of Australian silver projects to become a pure play silver company. The main asset is the Bowdens Deposit (NSW), purchased from Kingsgate (KCN) for $25m (cash plus script). SVL have two other projects, Webbs (11.8Moz) and Conrads (9Moz), both located in Queensland. Whilst the grade on both is good we estimate that the small size would make them uneconomic at present. Therefore we look at Bowdens as the main driver for SVL. Permitting and Feasibility studies are ~80% completed on the Bowdens project.
Azure (AZS) has been exploring in Mexico for a number of years now and have made what looks like a very good discovery. It is too early to start estimating likely production parameters on the project. In addition to the silver resource there is potential for an adjacent gold resource.
White Rock (WRM) has recently announced a funding arrangement for the development of their Mt Carrington
Peer Comparison Conclusion: On silver grade IVR ranks highest, on silver only resource they are second. SVL has the largest resource but a larger capex bill. Qualitative assessment of the exploration potential would see us rank both IVR and AZS at the top of the list.
Grade and size comparison for ASX Silver stocks.
Source: PAC Partners estimates and Company Reports
On an EV/Contained Silver ounces basis IVR is well placed amongst peers.
Market Cap (A$m) 67
30
30
11
7
23
87
Source: PAC Partners estimates and Company Reports
Silver Grade (g/t)
84
52
23
130
49
116
Contained Silver (Moz)
25.9
20.5
22.5
16.5
29.3
32.8
Company
Azure Minerals Macphersons Resources KGL Resources
PNX Metals
KBL Mining
Investigator
Silver Mines Australia White Rock
Argent Minerals
52 157.3 10 38 23.9 10 44 34.1
EV/oz Ag
1.89 1.28 1.21 0.70 0.64 0.51 0.50 0.39 0.28
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PAC Partners | Equity Research
Investigator Resources (IVR)
Silver has investment and industrial drivers
Silver in defficit
Mine supply modestly increasing but lower scrap supplies reducing overall supply.
Silver Overview
Silver is similar to gold in that demand is driven as an investment vehicle, however silver also has a number of industrial applications that make it subject to physical demand drivers. Almost 50% of fabricated silver is used in industrial applications.
A decrease in secondary supply (scrap) and an increase in demand has seen the supply/demand balance for silver slip into deficit.
Silver Supply: Silver supply is generally broken into two parts, primary supply from mines (~66%) and secondary supply (~30%) from scrap, government sales and hedging.
Growth in mine supply slowed to 2% in 2015, with the global mine production of 887Moz in 2015 (868Moz 2014). The top producing country was Mexico followed by Peru. The modest gains in mine supply were offset by a drop in scrap supply of 13%. Global scrap supply in 2015 was 146Moz, down 13% on 2014 and the lowest level since 1992. The drop off in scrap supply since 2011 parallels a decline in the silver price.
Demand: Global silver demand increased in 2015 to a record of 1,170Moz, up 3% YoY. The increase in demand has been driven by a 24% increase in investment (bar and coin) primarily out of India and North America. Jewellery fabrication has also increased in India and North America, with a decline in Chinese fabrication. Declines in traditional industrial uses (electronics, brazing alloys & solders, and photography) in 2015 were offset by emerging uses (solar and ethylene oxide catalyst).
Overall the increases in demand and reduced secondary supply has pushed the silver market into deficit.
Silver Physical Surplus/Demand World Silver Demand
Source: World Silver Institute Source: World Silver Institute
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PAC Partners | Equity Research
Investigator Resources (IVR)
Roger Marshall (Chairman)
John Anderson (Managing Director)
Bruce Foy
(Non-Executive Director)
David Jones (Non- Executive Director)
Angelo Gaudio
CFO and Company Secretary
Board and Management
The board of IVR has been stable for a number of years and guided the company through the exploration stage to resource delineation and now feasibility mode.
Roger has over 40-years’ experience in the Mining Industry at senior level in both operations and in executive roles. He has been involved with the taking of a number of projects from development into production.
Roger previously served on the Boards of Mt Isa Mines Holdings Limited, CITIC Australia Trading Ltd, Energy Brix Corp, AGD Mining Ltd, Macarthur Diamonds Ltd, Copper Resources Corp Ltd, Queensland Ores Ltd, Macarthur Coal and OGL Resources Ltd.
John is a geologist with 40 years experience, having worked in various major base metal/gold mining centres including Kalgoorlie, Broken Hill, McArthur River, Mount Isa / Ernest Henry and the Gawler Craton. He has had exploration success leading the discovery of the Angas zinc resource, the Menninnie Dam zinc deposit, the White Dam gold copper deposit and several mineral sands deposits in the Murray Basin.
John served as a NED of Southern Gold Limited from 2004 to 2008 and has been managing Director of IVR since IPO. John is currently on the board of the Minerals and Energy Advisory Council in South Australia.
Bruce has 25 years experience in senior banking roles. He is currently Chairman of State Water Corporation, a Non-Executive Director of The Doctor’s Health Fund Pty Limited, an independent director of the Financial Planning Association of Australia Limited and Chairman of SMSF Owners’ Alliance. He was previously Chairman of Transgrid Corporation, Chairman of the International Banks and Securities Association Limited and a NED of CITIC Australia Trading Ltd.
David commenced his career as a geologist in 1964 with Broken Hill South Ltd and was involved with the exploration that led to the discovery of the Duchess phosphate deposit near Mt Isa. He then moved into academia before re-entering the private sector with Newmont (later Newcrest), holding various roles from Exploration Manger to Manager Strategic Planning.
Angelo is a qualified accountant with over thirty-five years of finance, management and accounting experience. He is currently the CFO and Company Secretary for Renascor Resources, as well as past Vice President, Finance and Administration with Heathgate Resources.
Risks
Transition from Explorer to Developer: IVR has made a discovery and defined a resource the next stage will be bringing that resource into production. One key risk in making this transition is that the skill set required for production is different from exploration. The establishment of a production oriented team will help reduce this risk.
Geological Variability: The nature and grade of the mineralisation at Paris in particular will require tight geological control during mining.
Potential Production from Paris – the silver grade at Paris is variable, with several very high grade blocks in the resource model. This does present both an upside and down side risk with production. The use of a conservative average resource grade helps reduce this risk.
Resource extensions – We have assumed that ~75% of the current resource at Paris is recovered, until the final pit design is known the amount of recoverable silver remains an estimate.
Access to capital – The construction of Paris will require an estimated ~$40m (PAC estimates), at this stage no funding package is in place.
Commodity Pricing and Currency Changes: As a commodities company IVR are exposed to movements in the underlying commodity prices and also the prevailing exchange rate.
Permitting: The permitting process will need to be completed before construction and production commence. The location of the project does not appear to be in an overtly environmentally sensitive region therefore we would expect that the permitting risk is low to moderate. The main risk will be around the time taken to achieve permitting for not only Paris but the potential water source.
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PAC Partners | Equity Research Investigator Resources (IVR)
