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.
AMI Price at posting:
49.5¢ Sentiment: Buy Disclosure: Held
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