Fosters initiates coverage of MYL

20th April 2020

INITIATION - Myanmar Metals Ltd (MYL, $0.04, mkt cap $71M). A genuine world class asset. BUY. PT $0.10.

The analyst does not own MYL securities. Foster Stockbroking and associated entities (excluding Cranport Pt Ltd) do not own MYL securities. Cranport Pty Ltd owns 500,000 MYL shares. Refer details end of report.

Event:

• We initiate research coverage on Myanmar Metals (MYL).

Investment Highlights:

· MYL’s major asset is its 51% interest in the Bawdwin mine development project in Myanmar. The mine has chiefly produced zinc, silver, and lead dating to the 15^th century, while mining last occurred in 2008. MYL’s partners in the project are domestic companies, each with 24.5% interest.

· Bawdwin has JORC Resources of 101Mt at 4.0% Pb, 97g/t Ag, 1.9% Zn, and 0.2% Cu and Reserves of 18.4Mt. A PFS on the project envisaged open pit mining of the China (Starter) Pit at 2Mtpa for 13 years, producing Pb-Ag and Zn concentrates. Average annual production of contained metal is estimated at 118kt Pb, 10Moz Ag and 49kt Zn. Capex of US$300M (100%) while cash costs were -$0.45/lb Zn, placing Bawdwin in the lowest quartile.

· Bawdwin at upper end of peer comparisons - highlights world class nature of asset. We have compared Bawdwin with over 100 mines globally that are predominantly Ag, Pb, or Zn. In terms of size (contained metal), Bawdwin ranks 12^th, with those larger than it mostly owned by majors such as Glencore, S32, Vedanta, and MMG. Similarly, the project ranks high in contained Pb (6^th) and Ag (12^th). Additionally, its C1 costs, even after adjusting for production sharing taxation are well below listed peers, with only Adriatic Metals’ Rupice comparable.

· We expect regulatory approvals in 3QCY20. We expect the company will submit a DFS-equivalent mining plan to the Government by 2QCY20 as part of applying for regulatory approval to take control of the project and proceed with developing a new mine. We expect approval to be granted in 3QCY20, paving way for offtake, financing, and FID in CY21.

Valuation and Earnings:

· Our after-tax nominal NPV₁₀ of Bawdwin (100%) is US$396M and pre-tax US$608M, the latter 4% higher than the PFS real NPV₈ of US$580M, mostly due to our assumption of higher Ag price (US$18.44/oz vs PFS’ $17.30/oz).

· We forecast MYL to generate losses from FY20e to FY22e as it develops Bawdwin, and maiden NPAT ($9M) in FY23e when production begins, with steady state in FY24e (MYL NPAT $69M).

We value MYL at $0.10/share based on the Starter Pit, as well as attributing potential value to exploit copper (not accounted for in PFS), JORC Resources beyond those mined in the PFS, and likelihood of a 7-year tax holiday. We account for share dilution to fund capital (we assume 50:50 debt: equity). Peer P/E and EV/Resource analysis supports our valuation.

Recommendation:

· Initiate with Buy, 12-month PT $0.10/share. We initiate on MYL with a Buy, and 12-month PT of $0.10/share, based on our valuation.

· Catalysts for the share price include: 1) Receipt of regulatory approvals for Bawdwin Joint Venture production sharing agreement (PSA) and permit to develop mine; 2) Release of DFS; 3) Finalisation of offtake and financing; 4) FID; 5) Start of construction; and 6) Mining and production.