Article

Morning folks,

Just a broker update from Hartleys

Aurelia Metals Ltd (AMI $0.50)
Sector: Resources (Gold/Base Metals)
Recommendation: Buy
Price Target: $0.75/sh
Valuation (Last Pub.): $0.79/sh
Analyst: Mike Millikan

• AMI provides quality gold exposure with high-grade base metal credits (lead, zinc and copper) from its two operating centres (Peak and Hera) within the Cobar Basin of NSW.
• Our FY21 forecast is for Group production of ~86koz at an estimated cost (ASIC) of A$1,593/oz.
• Higher lead and zinc, but lower copper production is also forecast, with sustaining capex of A$40-45m (in-line of A$43m FY20a) and lower growth capex of A$18-21m (down from A$36m FY20a).
• Lower than current base metal prices (credits) were used in Company guidance, which implies potential for lower than forecast costs, especially in the SepQ; importantly AMI is fully unhedged for gold sales.
• Exploration continues to be value driver, with the Company’s exploration budget doubled to ~A$24m FY21, with drilling being accelerated at Federation to provide future development optionality for the Hera operation.
• Federation (located only 10kms south of Hera) is seen as one of the best new discovery within the Cobar Basin for the last 40 years, with a maiden resource delivered in June’20 and another resource update expected before CY20 end; in addition an exploration update is due in early Oct’20.
• We see potential for first ores from Federation in FY23, and we note that the average net smelter return (NSR) for the deposit is A$373/t, already 60% higher in value than the current Hera resource(A$232/t NSR), and we see potential for Federation to increase above A$400/t NSR in the next update.
• AMI retains a strong balance sheet with cash in excess of A$79m and remains debt free. The Company also remains committed to shareholder returns, with a payout ratio of 30-40% on recent fully-franked dividends.
• AMI has attractive EV/EBITDA multiples of 2.4x FY21 and 2.2x FY22, on our forecast gold production of ~86koz FY21, ~85koz FY22, and commodity price deck. A good time to buy the stock.