Revenue would be split 60% from tungsten and 40% from molybdenum, though the ratio would be greater in favour of tungsten in the higher levels of the mine. Development Timetable THR hopes to have financing arranged by October 2008, which would enable commissioning in late 2009. This is about a year later than the Company was quoting in 2007 (but we did caution that we thought its timetable was unrealistic at the time). Offtake Agreement With CITIC THR has signed a life-of-mine off-take agreement with CITIC Australia Pty Ltd for the sale of scheelite and molybdenum concentrates. The net price that Thor expects to receive is approximately $203/mtu, which is a discount to the Metals Bulletin quote of US$250/mtu. BOOT Now a Finance Option The specialty metals markets are known for their limited volumes compared to base metals and marketing arrangements are more specialised. The dominance of Chinese producers limits the transparency of these markets, particularly in the case of tungsten. This tends to limit the options available for the debt financing of projects as off-take agreements are traditionally not firm enough with respect to price and volume to be bankable. Recognising these issues, THR is pursuing a BOOT (Build Own Operate Transfer) strategy that could account for at least $40m of the $65m required for the development of Molyhil. A third party would take on this responsibility with the major impact for THR shareholders being a minimisation of dilution at this point that would otherwise come through heavy equity issues. Operating costs would be higher as there would be an element of financing charges built into the transaction, but the net result should be substantially beneficial to shareholders. A $40m contract would add another $20-25 pt operating cost for the duration of the contract, and could involve a transfer payment of $10-15m at the end of year three. THR is also considering BOOT contracts for the camp and power supply, which could reduce its upfront capital requirement to something between $10-20m. BGF Equities Research Thor Mining PLC Issued 22.05.08 Commodity Price Steady to Firmer Both tungsten and molybdenum prices have been maintaining levels seen late last year, with some improvement. However, the continued strength of the A$ has been having a net negative impact. There are expectations that the tungsten price will be up around US$300/mtu by the end of 2008. Opes Prime Has Been an Overhang THR was affected by the Opes Prime debacle, with 4.5% of the issued shares and 3.9% of the issued warrants in the equation. These have now all been sold on market. Potential Earnings We can see the project generating cash flows of $11m p.a. or 7.4¢ per share based on the assumptions below. The prospective cash generation multiple of 1.5x is significantly more attractive than King Islands Scheelite’s 3x, and Queensland Ore’s 7.1x. The attached spreadsheet provides a snapshot of key parameters for other prospective tungsten producers. Capital Expenditure $65m Boot Finance $45m Net Capex Required $20 Operating Costs $78 pt BOOT Costs $20 pt Net Tungsten Price US$200/mtu Net Moly Price US$26.80/lb Unit Cost (net of Mo) US$114/mtu
THR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
