() poured its first gold in late November 2020 and is expected to produce 4,000-4,100 ounces in December and 10,000-10,500 ounces in the March quarter of 2021.
Euroz Hartleys Securities Limited has reiterated its speculative buy recommendation for Firefinch and has maintained its price target and valuation of 30 cents per share (current share price: 14 cents).
The following is an extract from Euroz Hartleys’ research update:
Investment case
FFX recently completed the acquisition of an 80% interest in the Morila gold mine in Mali. FFX is planning to transition the 4.5mtpa plant from its current tailings ore feed to treat open pit ore from satellite pits and ultimately the Morila pit. The Company is also remodelling the Morila open pit resource which currently stands at 1.3moz @ 1.26 g/t Au, with the new resource to use 0.4g/t cut-off vs the existing 1.0g/t. On our numbers we believe FFX has the potential to become a ~140koz pa producer once the mine/mill is fully ramped up (~4.5Mtpa, ~1.1g/t, ~90% recovery) with ~110koz being attributable (80% ownership). We have transitioned our valuation model to a DCF NPV12 and have made numerous speculative assumptions in anticipation of the Company releasing further detail on its mine plan (Resource and Ore Resource, mining and refurbishment costs). We also note that our price target includes a value of 8cps (A$60m) for the Goulamina Lithium asset, which is relatively cheap vs peers and we believe is easily defendable. We reiterate our Speculative Buy recommendation and maintain our Price Target and Valuation of 30cps (A$235m).
Key points
- FFX poured its first gold in late Nov’20 and marked its entry as the newest ASX listed gold producer.
- The Company produced slightly higher than forecasted production in November with 4.13koz produced at a recovery of 51% with a reported AISC estimate of between US$1,000-1,100/oz.
- FFX expects production to be in the order of 4-4.1koz in December with 10-10.5koz in the MarQ, with cash flow generated to be reinvested into Morila.
- We estimate FFX has ~$30m in cash post transaction with no debt.
- The Company is currently progressing numerous work plans to restart full scale mining including:
- Refurbishment of the processing plant to process hard rock ore.
- Mine planning for satellite pits.
- Tailings and water management (restart TSF as opposed to the current use of the Morila pit).
- Exploration and infill drilling at Morila and Satellite pits.
- AC drilling has been completed over the remaining tailings resource with the Company noting modest extensions, we assume production from the tailings will be extended by 1-2months, previously forecasted to end in May.
- The Company has delayed the Morila Resource update into early CY21, with the basis for the new resource including 3D re-modelling at a lower cut-off grade (0.4g/t vs 1.0g/t) along with recently accessed drilling and grade control data. We are expecting a larger but slightly lower grade resource than the existing 1.3Moz at 1.26g/t.
- We expect FFX to announce a new mine plan, capital costs and production schedule in the MarQ. The aim is for production to transition from tailings to the satellite ore feed in the JunQ CY21.
- We also flag recent media reports of further strikes at Resolute’s Syama gold mine in Mali and note that FFX previously reported that labour unrest has not impacted Morila.
Analysis
- We have transitioned our valuation model to a DCF NPV12 and have made numerous speculative assumptions in anticipation of the Company releasing further detail on its mine plan (Resource and Ore Resource, mining and refurbishment costs).
- We estimate that mill refurbishment will cost in the order of ~A$30m with a further ~A$15m for pre-strip/de-watering costs.
- We assume this will be funded out of existing cash (~A$30) and operating cash flow. We also assume that FFX will be able to secure debt funding of ~A$30m (assumed drawn down in MarQ CY21).
- Although we assume that the Company will not require further equity funding, we believe further equity dilution is a key risk and have attempted to account for this by risking our NPV12 by 80%.
- We assume that Satellite pits ore feed will be available for the mill in the JunQ CY21 once Tailings resource is depleted, although we note that the timing could be tight.
- Post the Satellite ore feed we assume ore from the Morila pit will be available in Q1 CY22. With the mine ramping up to fill the mill capacity of 4.5Mtpa by the end of CY22. y On our numbers once the mill/mine ramps up to full capacity it should capable of producing ~140kozpa (~4.5Mtpa, ~1.1g/t, ~90% recovery) with ~110koz being attributable (80% ownership) at an AISC of ~A$1650/oz or ~US$1,200/oz.
- We currently model a 6 year mine life of at Morila, although we have attributed A$22m or 3cps in exploration value as we believe the Company will extend mine life through further exploration. As further detail is released by the Company we will look to update our numbers accordingly
