Intersuisse today:
Albidon Limited ALB Tuesday, 27 May 2008
Developing the 1.2Mtpa underground Munali nickel project
Recommendation Speculative Buy
Investment Overview
Albidon Limited (ALB) is developing the 1.2Mtpa underground Munali nickel
project in Zambia. Annual production of 10,500t of nickel begins mid 2008.
Copper, cobalt, platinum and palladium by-product credits will offset some costs.
Nickel resources of 124kt are sufficient for 10 years mine life. Grade is low at
1.2% but economical. Sovereign, development, commodity and technical risk
require consideration. Investment suits risk tolerant investors seeking capital
gains from development and exploration success. This stock will be highly
volatile in the current climate as it has yet to reach production and thus has to be
regarded as speculative.
Recent Developments
• Takeover rumours have swirled for a few months with Lion Selection Group
finally confirming it will divest its 20% stake. The sale could pre-empt a full
takeover offer from purchasers such as Zinifex. Jinchuan, which has 5.6% of
the company and Munali offtake, may also put their hand up to secure
certainty of supply.
• Development and technical risk is falling with first ore in the concentrator
early May. At production of 10,500t of nickel, Munali would be a significant
bolt on acquisition for a mid-tier miner.
• Management approved a US$2.5m upgrade to the Munali concentrator which
sees production increase 20% to 10-10,500t of nickel from January 2009.
• Partner African Energy Resources has completed a pre feasibility study
(PFS) on the Chirundu Uranium JV. The resource increased 30% to 9.5Mlbs
of uranium. The PFS called for an operation processing 2.25Mtpa to produce
1.3Mlbs pa at operating costs of US$30-$40/lb over a six year life. Capex is
estimated at US$68m. ALB’s interest has diluted to 30% and it must
contribute to a bankable feasibility study to maintain its interest.
Recommendation
Several optimisation studies on Munali are likely to lead to further production
increases. Drilling of the Intrepid and Defiant prospects that are located within
the area is planned for late 2008. Mine life and production increases hinge on
delineating resources at these prospects.
First Munali ore was delivered to the concentrator early May. Cashflow is not far
away. Munali is fully funded, having raised a further US$15m from Jinchuan
Group. ALB has completed all nickel hedging as required by its financing
arrangements. Total hedged nickel between 2009 and 2013 is 11,300t, under
25% of forecast production. Average price is US$10.71/lb. ALB retains 100%
exposure to the spot nickel price up to January 2009 and 75% thereafter till
2013.
We believe the company is a Speculative Buy.
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