Wednesday, 8 January 2020
Stock
Myanmar Metals (MYL)
1 Recommendation
SPEC BUY
2 Current Price
Valuation
$0.044
$0.30
3 Target Price
$0.18
Quick Read
Myanmar Metals (MYL) has completed an internal study into an expansion of the Bawdwin open pit. The study has shown the viability for two additional phases of open pit cut-backs, extracting a much higher proportion of the 101Mt polymetallic resource. This will extend the open pit mine life, prior to heading underground, and warrants a review of the scale of the processing plant (from 2Mtpa in the 2019 Pre-Feasibility Study [PFS]). Argonaut sees deep value in the stock following share price weakness in H2 2019. H1 2020 will provide strong newsflow including, ongoing drill results, the Definitive Feasibility Study (DFS) release and most importantly, attaining requisite approvals for development.
Event & Impact: Expansion study - Positive
Open pit mine life extension:MYL has completed an open pit expansion study on the Bawdwin deposit, highlighting the potential to extract a much larger proportion of the 101Mt resource from surface. Following the initial starter pit, which mines only the central China Lode to a depth of 220m below the current floor (outlined in the 2019 PFS, seeResearch Report), a further two phased cut-backs have been designed. Phase 2 to will deepen the pit by 50m and incorporate part of the southern Meingtha Lode and Phase 3 will deepen the pit by a further 95m. Argonaut estimates the minable resource could increase from 24.7Mt to +50Mt. As a result of the increased inventory, MYL is now considering a larger processing facility (previously 2Mtpa throughput).
Key value drivers for H1 2020:MYL is due to achieve its most value accretive milestones in the current half. Foremost will be attaining approvals from the Myanmar Investment Commission (MIC), which outlines the economic terms of the operating licence and enables MYL, as a foreign entity, to be the majority owner and operator of the project. MIC documentation is due to be lodged in February 2020 with final approvals anticipated April/May 2020. Following the MIC, the Company will release the Bawdwin DFS. Financing and offtake negotiations are ongoing and should be finalised around mid-year. Argonaut believes streaming of one or more co-products (i.e. silver/zinc) could fund a substantial portion of the pre-production capital (currently US$300m). In addition, Zhongjin Lingnan, the parent company of MYL’s major shareholder Perilya, previously provided a non-binding Letter of Support to assist in up to US$150m financing for project construction.
Upside in the upcoming DFS:The upcoming DFS should provide value upside on the original PFS. Recent metallurgical tests have indicated higher recoveries from transitional and lower grade halo ore types and additional geotechnical drilling should facilitate steeper wall designs, lowering the overall strip ratio of the open pit. While a larger scale plant will likely increase pre-production capex, higher production rates and operational cost savings should deliver a higher overall NPV.
Recommendation
Argonaut maintains a BUY recommendation and a $0.18/sh target price.
