STT FA LONG
ASX:OBM
Market cap 100 mill
Cash circa 30 mill
Infrastructure: plant recently refurbished, 160 person mining cap, power and an airstrip.
Cost to begin production: 8.5 mill
Doing some calculations on what i think this company should and will be valued at in the near future.
Taking into account the following first.
1) All infrastructure in place including a 160 person mining camp
2) Mill was refurbished in 2016/17 so likely in tip top shape
3) 8.5 mill required to switch back on mill
4) 1.8 Mill oz reserve currently with a drilling program underway and DFS due out next year.
The reserve of 1.8 mill oz is at a grade of 2.6 gpt, the previous operators ran into issues due to debt and the start up costs to get an operation up and running, they have essentially derisked this in massive way and although they bit the dust in doing so, this new company is debt free with 30 mill in cash, due to this i think OBM has a much higher chance of execution, here is why:
After the second tranche of the placement is complete the total issued capital will be 586 Million shares.
As we know they will have 30 mill cash after this is done, lets assume they spend all of it over the next 12 months drilling and executing a revised DFS, taking this assumption they will likely need to issue another 50 mill odd shares and lets assume they do this at 20c (although i think it would be around the 40c mark therefore halving this number) to raise another 10 mill which covers the required 8.5 mill needed to turn the plant back on.
Now the assumed capital structure is sitting at 636 million shares on issue.
Current gold price is $2240 AUD
Production cost to margin estimates:
$1600 AISC @ $2240 AUD = $ 640 per ounce margin x 1.8 mill ounces = $1,152,000,000 / Assumed 636 Mill shares on issue = $1.81 per share valuation if fully valued
$1700 AISC @ $2240 AUD = $540 per ounce margin x 1.8 mill ounces = $ 972,000,000 / Assumed 636 Mill shares on issue = $1.52 valuation if fully valued
$1800 AISC @ $2240 AUD = $440 per ounce per ounce margin x 1.8 mill ounces = $ 792,000,000 / Assumed 636 Mill shares on issue = $1.24 per share valuation if fully valued
$1900 AISC @ 2240 AUD = $320 per ounce per ounce margin x 1.8 mill ounces = $576,000,000/ Assumed 636 Mill shares on issue = .90c per share valuation if fully valued
Obviously alot of assumptions in the above figures such as, getting into production, being able to produce sub $2000 and the gold price staying where it is.
I personally think an AUD gold price of around $2500 is on the cards for years end so even producing at $1900 with the assumed capital structure would make the project worth over $1 a share if valued on this metric.
The assumptions also assume no drilling success which is highly unlikely and assume OBM decide to mine this project themselves and we don't see an ownership change as recently with EAR and NST.
Unfortunately i think this stock will be taken over before it ever trades at $1.5 but i believe the risk to reward of buying stock between 18-30c is a great risk to reward play.
Please note these are all my opinions only that could very well be wrong or incorrect, nothing here is to be taken as advice and i have been buying these shares with a view of holding them for 6 to 12 months as i think the unhedged nature of the project in its current state is a great play on the price of gold.
Do your own research
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