Sprott initiates coverage of Firefinch, page-37

Juicy bits:
At US$49m per 100kozpa of production capacity, this ranks as one of the most capital efficient projects in the gold mining sector.

Firefinch’s exploration potential is compelling with a district landholding with one world-class asset and a conspicuous lack of other discoveries.

Firefinch is trading at a significant discount to the West African (plus Centamin) producer peer average valuation ranges at just 0.3x NAV and US$58/oz vs the producer peer average of 0.7x NAV and US$112/oz.

We initiate with a BUY rating and A$0.50/sh price target based on 0.75x NAV5%-1850/oz. This multiple is in line with our target multiple for DFS stage developers. Compared to a typical developer, the funding quantum for Firefinch is significantly lower relative to production potential due to the mill and infrastructure in place and positive cash flow from tailings currently and satellites in H2. Stepping back, we firmly believe that growth is the attribute that is most rewarded for small cap gold producers, particularly in West Africa, and in our view Morila gives Firefinch an initial asset with the size and scale to be a growth platform in the region. Moreover, Firefinch has control over a significant exploration land package that, usually for the region, has yielded just one major mine, and we believe this points to the significant regional exploration potential on the license.

Risks
Geological: We view this risk as low.
Mining: We view this risk as low.
Development: We view this risk as moderate. The key workstream in our view is dewatering the main pit. We note that permits have been received to discharge water from the pit. The pit will also require some tailings to be removed followed by rehabilitation of the benches.
Processing/Metallurgy: We view this risk as low.
Infrastructure: We view this risk as low.
Environmental: We view this risk as in low.
Social: We view this risk as moderate. Mali is a developing economy with a per capita GDP of US$879/year according to the world bank, which presents some challenges. There is also an Islamist threat in the north of the country but this has not been a disruptive issue in the southwest, where Morila is located. Despite these factors, Morila operated without incident and the mine’s previous operators, Randgold and Barrick had a very strong reputation for social license to operate in Africa.
Political: We view this risk as moderate to high The country experienced a military coup in 2020 after a contested election result. Thus far, mine production in Mali has continued uninterrupted. Firefinch was also served a tax assessment relating that claims that 2017 mine revenues were understated by US$54.25m. Firefinch noted that Morila has unused tax credits to offset a potential claim and has publicly stated that it believes the claims are unwarranted. A resolution of the tax claim would be a material de-risking event in our view, though we also note that other permits have been received by Firefinch since the tax assessment, indicative of a good working relationship with the Government.

Why we like Firefinch
1. 2.35Moz at 1.51g/t resource base gives potential for 10-year mine life at 150-200kozpa
2. 20-year Morila production history with operating plant and infrastructure
3. At depth and regional exploration potential with 685km2 land package in Paleoproterozoic district
4. Building strong management team and board and with experienced operating team in country