Euroz just released a new report on NXM regarding the likely hood of NST taking out NXM or Wallbrook.
Action
On the back of rising costs, since our last PT upgrade, additional data points from recent M&A in the gold sector and a change to our view on how theNXMassets could be mined we revise our valuation and PT.
Our valuation is a blend of risked development case scenarios, which see a valuation spread from $0.23/sh to $0.46/sh under hypothetical development scenarios. Under these scenarios, and elevated mining costs (particularly for our assumptions for open-pit mining) we have revisited our price target.
Increasing costs at the Northern Star Carosue Dam Operations (CDO), reducing grades and an increasing component of open-pit mining as a proportion of the mill feed seesNXMwell placed to contribute to a changing strategy where open-pit material at NST becomes the dominant feed through the CDO mill. Wallbrook offers an immediate (on granted mining leases) low-strip (thick intercepts near the surface) and high-grade (see results), low-cost (oxide), high-recovery (95%+) solution to these NST problems. All are within 2km of the operating NST open-pits and underground mines (Porphyry Mining Centre) and 40km away from the 3.6Mtpa (Could run at 4Mtpa withNXMoxide material) Carosue Dam plant.
Scenario 2: Open Pit Upper Limit of Expected Minable Resource
- Open Pit Resource of 730koz @ 1.7g/t in-situ, 1.4g/t mined (diluted).
- 1.5Mtpa of Ore Mined and Processed a year
- Assume a processing cost of $52/t (Back calculated from NST H1 results and inflated).
- Royalties of 2.5%
- Corporate overhead & G+A of $10/t
- Open Pit mining cost of $8/BCM
- Strip ratio of 6-7 to 150m depth (avg. thickness of 15m)
- Risking 75% (i.e multiply overall NPV12% by this factor).
- Capex to start: $20m
- Sustaining Capex $58m
On a risked, Pre-Tax NPV12% @ 75% risking we arrive at $135m of pre-tax cashflow anda diluted valuation of $0.30/sh.
Under NST ownership we make a simple amendment to our assumptions, reducing processing costs to $30/t, and increasing thruput to 2Mtpa (or 50% of total mill feed) and keeping all other assumptions the same.
Under NST ownership this asset could generate 91kozpa for 8.5 years, we arrive at a Pre-Tax NPV12% @ 75% risking we arrive at $178m of pre-tax cashflow.
Under scenario 2 and the $100/oz bid we would land at an acquisition price of $73m or $0.40/sh (124% premium to the current price)
