1. Healthcare

Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Price Target: $0.087/sh
Key Points
We value Energia at $0.087/sh.
Energia owns two advanced good quality mineral projects in Zinc and Uranium
located in low political risk countries.
Both projects have potentially economic resources, of modest scale with modest
capital requirements, have strategic or corporate appeal and can be fast tracked due
to the advanced level of work already done and provide leverage to commodities
with looming supply deficits.
Energia is well capitalised with $7m in cash and no debt through an $8m equity raise
at $0.025/sh in Nov’14. Alex Burns and Marcello Cardaci, former directors of Sphere
Minerals emerged as significant shareholders and directors.
Gorno Zn project in Italy, previously mined by ENI, should deliver a JORC resource in
2015 leading to commencing a feasibility study into re-development. Rehabilitation
of underground access will commence Jan’15 to enable confirmatory and extensional
drilling in May and July respectively.
The Exploration Target of 6-10mt grading 7-10% Zn+Pb is supported by historic
drilling results.
Existing underground mine infrastructure, historic drill hole data and production
records, and granted Mining Concession suggest Gorno can be fast tracked.
Corporate Data
Share Price
Issued Capital
Ordinary
Options (O-O-M)
Total Diluted
0.030 $/sh
609.0 m
36.7 m
609 m
Mkt Capital’n
Enterprise Value
Debt
Cash
18 $m
11 $m
0 $m
7 $m
Valuation
Turnover
12 mth Hi-Lo
Balance Date
$0.087
1.1 m sh per day
6.3-1.7cps
June 30th
Directors
A Burns
K Robinson
M Cozijn
M Cardaci
Ex Chair
MD
Fin Dir
NE Dir
Shareholders
Directors
Zero Noms
Jetosea
28.9%
11.6%
5.4%
Share Price Chart
30000
$0.06
25000
20000
$0.04
15000
10000
$0.02
VOL '000
Initation of Coverage
Energia Minerals
Share Price ($)
Analyst: Greg Chessell
Date: 29th January 2015
5000
A future supply deficit of clean, high grade zinc concentrates gives Gorno a strategic
value as elsewhere globally mature mines are closing.
Gorno could produce ~30ktpa Zn in a high quality concentrate over a long life at
moderate costs.
Carley Bore Uranium project in WA, is heading towards Field Leach Trials as
recommended in the 2014 scoping study. The FLT would form part of a feasibility
study into an In-Situ Recovery operation potentially producing 1.5mlbpa U3O8.
A high grade starter zone, excellent porosity, low acid consumption make this modest
resource look interesting. Exploration potential for resource growth is good.
$0.00
Jan-14
0
Apr-14
Jul-14
Oct-14
Disclosure
Euroz Securities declares that it has acted as underwriter
to and/or arranged an equity issue in and/or provided
corporate advice to Energia Minerals Ltd during the last
year. Euroz Securities has received a fee for these services.
This analyst declares that he has a beneficial interest in
Energia Minerals Ltd.
Paladin Energy (ASX:PDN) and Cauldron Energy (ASX:CXU) have neighboring uranium
projects in the Carnarvon Basin. Potential for EMX’s Carley Bore featuring in a future
consolidation is good.
Third party validation of Carley Bore value is that CXU made an unsuccessful takeover
offer for EMX in 2013; and Chinese controlled Enterprise Uranium (ASX:ENU) acquired
an 18.5% stake in late 2013 which has now largely been disposed into the market
progressively since the recent capital raising.
The positive outlook for uranium demand and price is driven by a growing political
ambition to reduce carbon emissions in electricity generation on a global scale. A
restart of nuclear electricity generation in Japan would tip the market into deficit in
the short term.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Discussion
Energia Minerals Ltd is a minerals exploration and development company with a
focus on Zinc and Uranium with tenements in Australia and Italy.
Energia listed on the ASX in Dec 2009 as a spin out from Carbon Energy Ltd (ASX:CNX).
It raised $7.5m in an IPO at $0.20/sh, valuing it at $14m. Its key assets today are the
same as in 2009, the Carley Bore Uranium project in WA and the Gorno Zn-Pb project
near Bergamo, Italy. Both projects have evolved significantly since 2009.
Source: Energia Minerals
ASSET VALUATION
A$m
A$/sh
Gorno
Carley Bore
Other Expl’n
Corporate
Working Cap’l
Debt
Cash
Total
shares
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
m
24
25
1
-4
0
0
7
53
609
A$/sh
0.087
Total
We value Energia Minerals at $0.087/sh.
The valuation is based on a risk adjusted potential NPV of the two key projects, Gorno
and Carley Bore which contribute equally to the valuation. We have applied a 50%
risk adjustment in both cases, reflecting the early stage of development in each case.
Energia has been hamstrung in the last 2-3 years by lack of access to equity capital
to advance its projects. The recent $8m rights issue with Alex Burns and Marcello
Cardaci emerging as large shareholders and directors gives Energia new life to
demonstrate value.
The Gorno Zn-Pb project is an opportunity to capitalize on inherited existing mine
infrastructure, permitting precedent and demonstrated mineable mineralisation
(not yet JORC complaint resource).
A shortage of new zinc mine developments globally relative to demand growth is
already widely reported. This also evident as a dearth of zinc equity exposure listed
on ASX. We have identified 13 companies with zinc as their principal commodity
focus.
Energia ranks alongside peers such as Heron Resources (HRR, Euroz Recommendation:
Speculative Buy), Mungana Mines (MUX) and Red River Resources (RVR) as modestly
capitalized hence offering leverage, with credible zinc assets in a good location.
Ironbark Zinc (IBG) and Terramin (TZN) have larger, lower grade deposits in less
desirable locations, while Aurelia’s (AMI) modest Hera deposit will produce zinc as a
by-product to gold and copper. We have excluded Independence Group (IGO, Euroz
Recommendation: Buy) as their zinc output is dwarfed by the value of gold and nickel.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
2 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
ASX listed Uranium Stocks
EV & Resource (Mlb U308)
Enterprise Value $m (blue)
4,800
140
4,200
120
3,600
100
3,000
80
2,400
60
1,800
40
1,200
20
600
0
Enterprise Value $m (blue)
$182 $240
Resource kt Zn+Pb (red)
EV & Resource (Zn+Pb cont)
160
$344
$927
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
Resource Mlb U308 (red)
ASX listed Zinc Stocks
Analyst: Greg Chessell
0
OVR
AUQ
SBR
PLD
VXR
EMX
HRR
RXL
MUX
RVR
IBG
AMI
0
0
TZN
AEE
Source: Euroz
EMX
AEK
AGS
DYL
BKY
BMN
CXU
LAM
VMY
PEN
TOE
ERA
PDN
Source: Euroz
Energia offers an excellent value leverage proposition as value can be created on
both projects. We envisage a separation of the assets eventually which should lead to
greater value recognition by the market as pure zinc and uranium plays.
The field of ASX listed Uranium companies with demonstrated resources is more
diverse and competitive. Carley Bore’s differentiation lies with it’s location nearby to
two other advanced projects, good metallurgy, and high grade starting opportunity.
ASX listed Zinc Stocks by Enterprise Value
Sh Price
Mkt Cap
Cash
Debt
EV
Zn+Pb cont
EV/t Zn+Pb
Ownership
$/sh
$m
$m
$m
$m
Zn+Pb Resource
mt
grade
kt
$/t
%
Description
OVR
0.007
1
1
0
1
12.6
6.2%
779
1
100%
Yukon, Canada, Glencore & Macq shareholders, in permitting.
AUQ
0.015
3
2
0
1
26.0
3.3%
429
2
50%
Khnaiguiyah, Saudi, Ore reserve, project stalled due to dispute
with local partner
SBR
0.017
4
2
0
2
16.0
2.1%
336
7
100%
Border deposit, Namibia
PLD
0.005
3
1
0
2
72
6.0%
4,320
1
100%
Admiral Bay, Kimberley, WA, deep 1,300m, opt to acquire
VXR
0.004
6
2
0
4
26.4
3.7%
977
4
100%
Pilbara, WA (Whim Ck & Sulphur Springs), DFS done, capex opt
pending, marginal, also Cu cont.
EMX
0.029
18
7
0
11
8.0
8.5%
680
16
100%
Gorno, Italy, Expln Target mid
HRR
0.125
47
31
0
16
21.7
8.5%
1,840
9
100%
Woodlawn, NSW, combined Underground & Tailings resources
RXL
0.027
23
3
0
20
90.0
12.5%
3,375
6
30%
Teena, NT, Teck 51%, earning 70%, Expln Target mid, other
assets Ni in WA & Cu in NT owned 100%
MUX
0.098
24
3
0
21
9.7
7.0%
676
30
100%
Chillagoe, Qld - King Vol, Red Cap, ex-Kagara historical Rsc,
0.6mtpa mill
RVR
0.170
30
4
0
26
3.8
10.6%
403
65
100%
Thalanga, Qld, ex-Kagara, Rsc update imminent, 0.6mtpa mill,
restart end '15
IBG
0.100
43
3
0
40
70.8
5.7%
4,036
10
100%
Citronen, Greenland, Mining Licence under appl'n
AMI
0.240
97
20
105
182
2.4
6.6%
158
1,149
100%
Hera, NSW, value in Au 4.1g/t, Pb+Zn by-product, in
commissioning
TZN
0.155
211
0
30
240
68.0
5.7%
2,519
95
65%
Tala Hamza, Algeria, DFS completed, development pending,
Source: Euroz
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
3 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Gorno Zn-Pb, Italy
The Gorno Zn-Pb project is owned 100% by Energia Minerals and lies 40km by
road north of Bergamo (population of about 120,000 – 1hr by car from Milan) in
the Lombardia region of northern Italy. It is in the vicinity of four small populations
(Zambla, Gorno, Oneta and Oltre il Colle) centre within 0.5-1hr by car from Bergamo.’
Gorno comprises 10 granted exploration licences and 4 licence applications covering
a former mine operated by the Italian state mining company, Samin, a subsidiary
of ENI. EMX has also recently acquired a granted Mining Concession covering the
Forcella Portal from a third party for €0.2m over 3 years, plus a 1% NSR.
Source: Energia Minerals
Euroz believes that Gorno is an attractive low cost, low risk, strategically important
while modest scale zinc development opportunity capable of capitalising on a
looming supply deficit in zinc in the coming years.
Energia is aiming to define mineral resources, complete a feasibility study and
recommence mining and zinc concentrate production. The historical records,
inherited infrastructure, proven metallurgical performance and existing permits
suggest an expedient and low cost path to development is possible.
Historically Zinc production, primarily the mostly mined out Colonna Fortuna deposit
near Gorno, is estimated at 800,000t Zn in concentrate from 6mt grading 14.5%
Zn+Pb mined entirely from underground means. Mine workings date back to Celtic
times and are spread over an area of 60km2. The mine is understood to have closed
in 1985 as ENI ceased all mineral production globally to focus on oil & gas operations.
Energia has searched, compiled and digitized historical mine data from archives at
both local and regional authorities. It has identified:
•
230km of underground mine workings, including the 12.5km Riso Parina adit;
•
2 portals (Forcella at 940RL and Riso at 600RL);
•
146 diamond drill holes and 319 percussion sludge drill holes, numerous
mineralized and unmined intercepts.
Plant site adjacent to Riso portal.
•
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
4 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Source: Energia Minerals
An exploration target at Gorno of 6-10mt grading 7%-10% Zn+Pb has been estimated
by Energia.
Gorno - Exploration Target
grade
tonnes
Zn+Pb
Zn eq cont
mt
%
mt
Col. Fortuna
1-2
6-7
0.1-0.2
Col. Zorzone >550RL
3-5
7-10
0.2-0.5
Col. Zorzone <550RL
2-3
7-10
0.2-0.3
6-10
7-10
0.4-1.0
Total
Source: Energia Minerals
Two main bodies of mineralization are 6km apart, connected by the Riso Parina adit.
•
Colonna Fortuna has been mined extensively, some remnant mineralization
remains but is not the initial focus. ENI records indicate 0.62mt grading 6.5%Zn+Pb
was defined and remained unmined at closure, between levels 500RL & 340RL.
•
Colonna Zorzone (formerly Panel 7) is a virgin orebody partially developed but
unmined prior to closure in 1985. Energia intends to establish a JORC resource
based on the areas of known mineralization. Some 3-5mt is expected above the
550RL level and 2-3mt between the 550RL and 200RL.
Historical drilling in Colonna Zorzone is supportive of the Exploration Target.
•
Results from 5 DD holes and numerous grade control percussion holes on 940RL
& 900RL average 4.6m @ 8.6% Zn+Pb.
•
Results from 5 DD holes on 600RL average 6.2m @ 10.1% Zn+Pb.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
5 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
The following table outline Energia’s planned work program at Gorno.
Source: Energia Minerals
Energia has engaged local contractor Edilmac to rehabilitate underground access to
enable confirmatory drilling. The contract is for rehabilitation of 1.4km of historical
workings from the Forcella portal, 710m of new decline development and 480m
diamond drilling aimed to twin existing drilling between 1000RL and 900RL.
The contract value is €3.5m incl VAT (A$5.0m), and should commence in January 2015
and complete by October 2015. The drilling will commence early May 2015. Edilmac is
an experienced underground contractor, having been involved in many high profile
European tunnelling projects.
Another drilling contract for 25 diamond drill holes totalling 3,750m will be awarded
shortly, with a value ~€0.5m (A$0.7m). This will define the resource between the
900RL and 600RL. This drilling will occur once the Edilmac decline development is
complete, expected in July 2015.
Source: Energia Minerals, SRK
Energia has appointed Graeme Collins, an Australian mining engineer with experience
in developing underground zinc mines, as Director of Operations, to oversee the
development of Gorno.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
6 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Gorno is a Mississippi Valley style deposit hosted in Alpine limestone setting.
Typical of this style of deposit, Gorno produces a clean, coarse grained, high grade
concentrate, historically grading 55%-58% Zn, and importantly low in iron (1-2% Fe).
Metallurgical recovery is high at +95%.
We believe these metallurgical characteristics will make Gorno strategically
important as the closure of mature Zn mines globally creates a dearth of high quality
concentrates which are required to blend with lower quality concentrates for optimal
feed to smelters.
The granted Mining Concession enables Energia to commence mining as is. The 1km2
lease surrounds the Forcella portal. Under Italian mining law a Mining Concession is
required to surround the surface expression of workings, and not necessarily cover
the entirety of the orebody.
Energia is expected in future to seek amendment of the Mining Concession
to encompass all possible surface expression of mining activity. Approval for
amendment of an existing lease should logically be more expedient than grant of a
new lease.
Energia will require environmental permission to enable construction and operation
of a processing plant. Prima facie this would seem the greatest risk to a successful
development by Energia. We believe it is achievable because:
•
Gorno is already a disturbed site with a history of Zn & Pb mining and concentrate
processing;
•
The nearby town of Ponte Nossa, 3km from Gorno and in the same valley, is host to
an operating zinc oxide residue refinery which recently received environmental
approval for an expansion within 9 months of application. Construction of the
expansion was ongoing during our site visit in August 2014;
•
The Mayor of Gorno, Mr Walter Quistini, indicated to us in a meeting during our
site visit strong local support for a mine development at Gorno, encouraging
establishment of a processing plant near the existing plant site, within the Gorno
municipality;
•
The regional mining authority, Regione Lombardia Mines Dept was awarded
the European Industrial Minerals Assoc award in 2010 recognising its efforts in
advancing mineral development;
•
Local press coverage during our site visit was clearly positive;
•
Gorno has a proud history of mining, and is sister city to Kalgoorlie-Boulder.
Grade is the biggest potential swing factor, and the 7.5% Zn + Pb assumed in our
model in the low end of possibility given historical production was +14% Zn.
We value Gorno at $24m, risk adjusted.
We have developed a cashflow model of a potential mine development at Gorno. We
assume mining rate 0.5mtpa at a Zn+Pb grade of 7.5% over a 10 year life, producing
30ktpa Zn & 6ktpa Pb. Development costs are expected at €65m (A$92m), and total
cash costs of US$0.61/lb. Our model produces an NPV of $48m (10% dcf, AT) and an
IRR of 25%. These assumptions are subject to feasibility study, with mineable tonnes,
grade, mining rate, development costs and operating costs uncertain.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
7 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Gorno - Euroz estimate of cashflow potential
Zinc
US/lb
Lead
US/lb
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
1.15
1.20
1.20
1.15
1.15
1.10
1.10
1.10
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
A$1.0=US$
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.80
Euro:US$1
1.15
1.15
1.15
1.15
1.15
1.15
1.15
1.15
0.0
0.5
0.5
0.5
0.5
0.5
0.5
0.5
Ore Mined
mtpa
Prod’n Zn
kt
C1 Cash Costs
US$/lb
0
30
30
30
30
30
30
30
0.26
0.58
0.58
0.58
0.58
0.58
0.58
0.58
Revenue
A$m
0
67
67
64
64
61
61
61
EBITDA
A$m
0
33
33
30
30
27
27
27
EBIT
A$m
0
28
28
25
25
21
21
21
Capex
A$m
93
4
4
4
4
4
4
4
Net CF (pretax)
A$m
-93
37
37
33
33
30
30
30
NPV (10% posttax)
A$m
48
IRR (AT, ungeared)
%
25%
Source: Euroz estimates
Ground conditions are excellent in the limestone host rock. We noted in our site visit
roof conditions mostly stable after laying dormant for +30 years. Mine production
records indicate adit development rates at a creditable 150m per month.
Concentrate tailings are naturally benign due to the limestone host rock acting as
neutralising agent against natural acid generation from oxidising sulphide typical
in base metal production. Underground storage of tailings will be considered in a
feasibility study. This would be a low cost and environmentally favourable use of the
extensive underground voids at Gorno, preferable to surface tailing storage.
Groundwater make is typically elevated in MVT style deposits. Historical records
indicate Samin successfully mined at Colonna Fortuna at levels up to 110m below the
current water table.
MVT style deposits can have erratic distribution of mineralisation. The abundant
historical drilling and mining information at Gorno has significantly reduced this risk.
The Gorno mineralisation is sphalerite (Zn) and galena (Pb) with a Zn:Pb ratio of ~5:1.
Gangue minerals include calcite, quartz, dolomite and ankerite. Minor silver , fluorite
and barite is also noted. The mineralised bodies are stratabound with dimensions
typically 1000m x 400m x 3-20m. The Colonna Zorzone body has a dip of ~26 degrees.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
8 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Carley Bore U, WA
The Carley Bore project lies within the greater Nyang project area, comprising 4 EL’s
located east of the North West Coastal Hwy between Carnarvon and Exmouth. The
project is 100% owned by Energia.
Source: Energia Minerals
Carley Bore is a defined uranium deposit with a mineral resource (JORC 2012)
estimated by Coffey Mining in Feb’14:
Carley Bore - JORC Mineral Resource
cutoff
tonnes
grade
U cont.
ppm
mt
ppm
mlb
Indicated
150
5.4
420
5.0
Inferred
150
17.4
280
10.6
22.8
310
15.6
300-500
15-25
Total
Exploration Target
The resource is based on 239 drill holes and uses a 150ppm lower cutoff. A total of
425 holes have been drilled in the entire project Nyang project area. Grade is based
on geochemical assay rather than gamma log data for greater accuracy. Mineralised
zones are avg 4.5m thick.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
9 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Significant resource upside exists as suggested by the stated exploration target. Just
10% of the prospective strike length has been tested to date.
Carley Bore lies within the Carnarvon Basin where mineralisation is hosted in the
Birdrong Sandstone Formation (Cretaceous age). It is a sandstone hosted roll-front
deposit similar to Honeymoon (UraniumOne), Beverly (Heathgate), and Manyingee
(Paladin). Mineralisation occurs at reduction-oxidation (redox) boundaries within the
permeable sandstone unit where it is thickened in paleochannels. Previous explorers
were Minatome, Urangesellschaft, Aquitane and Total since the 1970’s.
A scoping study was completed in April 2014 by independent mining consultants,
Jorvik Resources. It concluded the project:
•
Should be amenable to In-Situ Recovery (ISR), followed by standard elution,
precipitation and calcining process, recovering 70% of the in-situ mineable
resource;
•
Production and sale of 8.0mlb of U3O8 over a 6 year life with total cash costs of
US$32/lb and start-up capex of A$105m;
•
Is economically sound at a Uranium price of US$60/lb;
•
Recommended proceeding to Field Leach Trial in anticipation of a full feasibility
study.
Key financial outcomes from the scoping study are:
Carley Bore Scoping Study Outcomes
Plant capacity
2.0mlb pa
Production rate
1.4mlb pa
Mine Life
6 years
Capex - preproduction
A$106m
Capex - life of mine
A$116m
Uranium price
US$60/lb
Exhange Rate
A$1.00=US$0.85
Net Cashflow pretax
EBITDA avg pa
A$225m
A$56m
Opex C1
US$20/lb
Opex Total
US$32/lb
Source: Energia Minerals
Using Euroz’ price assumptions (uranium = US$50/lb, FX A$1.0=US$0.80) produces
financial results of $156m of undiscounted net cashflow pretax, a post tax NPV of
$50m and an IRR of 28%. We value Carley Bore at $25m, risk adjusted.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
10 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Carley Bore - Euroz cashflow estimates
U3O8
US/lb
A$1.0=US$
Production
mlb
C1 Cash Costs
A$/lb
FY17
FY18
FY19
FY20
FY21
FY22
FY23
50
50
50
50
50
50
50
Total
0.80
0.80
0.80
0.80
0.80
0.80
0.80
0.00
1.68
1.38
1.38
1.38
1.38
0.81
8.0
21
21
26
26
26
26
20
24
Revenue
A$m
0
105
86
86
86
86
50
500
Cash Costs
A$m
0
35
36
36
36
36
16
195
Other Costs
A$m
0
7
6
6
6
6
3
32
EBITDA
A$m
0
63
45
45
45
45
31
273
D&A
A$m
0
20
20
20
20
20
20
120
EBIT
A$m
0
43
25
25
25
25
11
153
Capex
A$m
105
3
2
2
2
2
2
117
Net CF (pretax)
A$m
-105
60
43
43
43
43
29
156
NPV (10% posttax)
A$m
50
IRR (AT, ungeared)
%
28%
Source: Euroz estimates
Features of Carley Bore that make it attractive are:
•
A high grade Zone 6 (grade 460ppm) allowing fast capital payback;
•
Amenable to ISR, a low cost (capex & opex) and widely used technique (~50% of
global uranium production) with low environmental impact;
•
Low acid consumption due to low carbonate in host rock, ~7.5kg/t of ore;
•
Shallow depths of 50-70m;
•
High host rock porosity (estimated average at >30%, range 18-45%);
•
Gas pipeline passes 10km east of the deposit.
A rotary mud drilling program is planned to commence post wet season, aiming to
select suitable sites for field leach trials, with focus on Zone 6. Drill density will be
closed from current 100m x 100m to 50m x 20m in part. The FLT has not yet been
committed to but is expected during 2015.
Exploration at Carley Bore in late 2014 comprised 2 geophysical surveys (Sub Audio
Magnetics and Induced Polarisation) and a 10 hole regional drilling program cofunded with WA DMP. The SAM was successful in mapping paleochannel within
the host rock unit, efficiently defining potential trap sites. The regional drilling was
unsuccessful in defining new mineralisation.
In our view Carley Bore has much technical and strategic merit already, and will
have commercial merit in a higher uranium price environment. It would benefit
significantly from further grade optimisation in early years, and a longer tail to its
life. The grade optimisation is possible with a greater understanding paleochannel
& roll-front geometry, perhaps through applying the SAM technique further. The
longer life is possible though further exploration along the prospective strike trend,
potentially realising the stated exploration target.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
11 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Peninsular Energy (ASX:PEN) has recently completed financing of Stage 1 of its 3
Stage Lance, Wyoming, USA, ISR project. Lance Stage 2 has similar characteristics to
Carley Bore. It will produce ~1.2mlbpa with total cash cost ~US$31/lb after total capex
of US$85m, including expenditure completed to date.
Source: Cauldron Energy
Carley Bore lies ~100km south of Paladin’s (ASX:PDN) 100% Manyingee project and
Cauldron Energy’s (ASX:CXU) Bennet Well project.
Cauldron Energy launched an unsuccessful scrip based takeover offer for Energia
Minerals in 2013, with CXU failing to acquire a meaningful stake. This suggests to us
some 3rd party validation of the project quality.
Paladin has recently indicated that it intends to conduct a Field Leach Trial at
Manyingee, WA in FY’16, and expects to commence development in 2018, targeting
production of 2.0mlbpa from a targeted resource of 40mlb. It currently has a resource
of 26mlb grading 850ppm U3O8. Paladin raised $205m in new equity in late 2014,
confirming that it is fully funded until at least June 2016.
Both major Federal political parties support uranium mining in Australia. The Howard
Gov’t (Lib-Nat) abandoned the ALP’s previous “three mine policy” in 1996, and the
Gillard Gov’t (ALP) approved a fourth mine at Beverley in SA in 2009.
The ban on uranium mining in Western Australia was lifted in 2008 by Premier
Barnett (Lib-Nat). The ALP Opposition in WA remains opposed to uranium mining.
This leads to some uncertainty should a change of government occur at the next
election which is due March 2017.
Toro Energy received final permitting for its proposed $270m Lakeway mine in April
2013 from the Federal Environment Minister, after receiving approval from the WA
Minister for Environment in October 2012.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
12 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Commodity price discussion
Zinc
We believe that a Zn concentrate supply deficit is impending over the next 12-24
months. This should lead to a significant improvement in prices by 2016, if not later
2015 in anticipation of the deficit.
Zinc has not sustained prices above US$2200/t (US$1.00/lb) since 2007. Weak prices
in the ensuing 7 years leading to under investment has created a dearth of new
greenfield globally significant deposits needed to replace the maturing deposits.
It is estimated that the closure of Century from Q3 2015, Lisheen and other small
closures might remove 900ktpa of zinc from a market that is already in deficit by
~250ktpa. The deficit has been supplied by metal inventory which has been drawn
down by ~400kt in the last 2 years. Planned new mine supply of small scale nonChinese projects might offset the deficit by 120ktpa. The total annual zinc demand
is ~14.0mtpa.
Chinese production has historically kept the zinc market balanced. Glencore
estimates that China has grown supply by ~225ktpa avg over the last 10 years in a price
environment of ~US$2200/t. It estimates Chinese annual growth in Zinc production
will have to double in the next five years (to 450-500ktpa) to meet demand. This will
require a price incentive above the prior 10 year avg.
China’s increased environmental awareness may actually limit new zinc mine supply
going forward. China is the largest Zinc concentrate producer in the world. However
its consumption growth has outstripped its supply growth leading to it becoming a
consistent net importer since 2009.
Glencore estimates zinc metal stocks will fall below the critical 3 week stock to
consumption ratio in 2016. We have noted other commentary suggesting >US$3000/t
is likely.
We envisage zinc prices sustaining levels of US$2,600/t (+20%) for 3 years from 2016.
Zinc spot price
US$/lb
Tonnes
1.3
1600000
Euroz
forecast
1.2
1200000
1.1
1.0
800000
0.9
0.8
400000
0.7
0.6
Jan-11
LME inventory
0
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Bloomberg, EZL
Source: Euroz, IRESS
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
13 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Uranium
Uranium spot price
US$/lb
140
Euroz
forecast
120
100
80
60
40
20
0
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Euroz, IRESS
The uranium spot price is last quoted at US$36.75/lb by Ux Consulting, up 3.5% so
far in 2015. Term contract prices are understood to be between US$39/lb (mid) and
US$50/lb (long) (TradeTech).
We assume long term uranium price recovering to US$50/lb during 2016. We
recognise potential for it to be higher still in time, but reserve this call until later.
The uranium price has been weak since a tsunami destroyed the Fukushima nuclear
reactor facility in Japan in March 2011. A total of 48 reactors were taken offline
following the tsunami. The spot price trended down from US$75/lb to a low of US$28/
lb in mid 2014. Destocking by closed Japanese reactors exacerbated a market that
was suddenly placed into surplus by the event.
The price remains well below the incentive level to bring new supply required for the
planned growth in nuclear electricity generation. Some 10-12mlb of mine supply has
been removed from the spot market in the last year, including Paladin’s Kayelekera
closure, 25% of Langer Heinrich production diverted to Chinese buyers and RIO’s
Rossing cutback.
The potential restart of nuclear electricity generation in Japan is a possible positive
catalyst for the uranium price. Authority to restart 2 reactors at the Sendai facility
of Kyushu Electric Power Co. was given in November 2014, and the actual restart is
imminent. Other reactors are expected to follow suit, with 20 applications lodged.
The spot price rallied in Nov’14 on news of the restart permission coupled with
speculation of more numerous approvals pending.
It has been reported that the volume of material traded in the spot market has
diminished, suggesting a tightening, coincident with firmer prices in term contracts.
However in recent months the weak oil price has spilled over to spot pricing of all
energy fuel types, including thermal coal and uranium.
Longer term, increased demand from 70 new nuclear reactors under construction
(half in China), is expected to result in a 25% increase in total uranium demand to
250mlbpa by 2019. Currently there are 437 nuclear reactors operational with a
generating capacity of 378GW. The share of nuclear generation by OECD countries is
expected to drop from 80% now to 50% by 2040. The spot price was edged up 3.5%
so far in 2015.
On a policy level, China, US and India stated targets for increased nuclear power
generation at the APEC summit in late 2014, driven by a desire for improved
environmental emission performance.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
14 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Source: International Atomic Energy Agency
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
15 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Other Assets
Val Vedello and Novazza are located in the Lombardia region of Northern Italy, some
10-20km north of Gorno.
Both projects are EL applications over previously identified significant uranium
mineralisation with substantial underground development in place for bulk sampling
for pilot plant testwork.
Both deposits were discovered and evaluated by Italian gov’t company AGIP, also a
subsidiary of ENI, between 1959 and 1982.
They are volcanogenic or vein-hosted uranium-polymetallic mineralisation hosted in
volcanics and volcanogenic sediments.
Energia has confirmed the extent of historical work by AGIP in a report prepared in
2013. It confirms Exploration Targets of:
•
Val Vedello: 15-30mlb grading 1000-2000ppm U308;
•
Novazza: 2-3mlb grading 1000-2000ppm U308.
The permits are at application stage and cannot be worked until granted, the timing
of which is uncertain. Energia intends to continue to compile historical data.
Val Vedello will be the priority target for development. It is located ~2,000m asl to the
south of Sondrio slightly more remote than Novazza.
Historic data reveals 10.4km of underground development and 65,000m of diamond
drilling from underground over 14 years.
Novazza occurs at 1,000m asl. Well-preserved underground workings are over 6.7km
and with 24,000m of drilling.
The June 2011 Italian referendum removed any likelihood for Italian nuclear power
generation. In Australia a similar policy does not necessarily preclude the mining of
uranium.
Energia understands there is no legal impediment to authorisation for grant of
uranium Exploration Licence applications in Italy. Energia believes that its local
presence and progress at Gorno may assist grant of Val Vedello and Novazza licences.
Energia also holds exploration projects at Table Top in the Paterson Province WA, 15km
NW of Kintyre uranium deposit, and Duncan Pool in the Gascoyne Province, WA.
Source: Energia Minerals
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
16 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Directors
Alexander Burns - Executive Chairman
Mr Burns was the Managing Director of Sphere Minerals Ltd (ASX: SPH) from 1998
– 2010. During this period, the company acquired and evaluated multiple, largescale iron ore deposits situated near existing transport infrastructure in Mauritania,
West Africa. Sphere was subsequently taken over by Xstrata PLC in November 2010
for A$514 million. Mr Burns was also non-executive Chairman of Shield Mining Ltd,
which was spun out of Sphere in 2006. Shield was a gold and base metals exploration
company active in Mauritania and was taken over by Gryphon Minerals Ltd in mid2010. The Executive Chairman role at Energia is the only board position that Mr Burns
has accepted since the friendly takeovers of both Sphere and Shield in the latter half
of 2010.
Kim Robinson - Managing Director
Mr Robinson has over 35 years’ experience in mineral exploration and mining having
graduated from the University of Western Australia in 1973 with a degree in Geology.
His experience is extensive including 10 years as Executive Chairman of Forrestania
Gold NL. During his time at Forrestania, Mr Robinson played a key role in the discovery
and development of the Bounty Gold Mine, the development of the Mt McClure Gold
Mine and the discovery of the Maggie Hays and Emily Ann nickel sulphide deposits.
Mr Robinson was also a Non-Executive Director of Jubilee Mines NL in the period
leading up to the discovery and development of the Cosmos Nickel Mine.
Mr Robinson was a founding Director of Kagara Ltd where he held the position of
Executive Chairman for a period of 12 years until February 2011. During this time he
oversaw the development of Kagara’s North Queensland base metal operations, the
listing of Mungana Goldmines Ltd on the ASX and the acquisition and development
of the high grade Lounge Lizard nickel deposit in Western Australia.
Max D.J. Cozijn - Finance Director and Company Secretary
Mr Cozijn has a Bachelor of Commerce Degree from the University of Western Australia
having graduated in 1972 and is an Associate of the Australian Society of Certified
Practising Accountants. He has over 30 years experience in the administration of listed
mining and industrial companies, as well as various private operating companies
including 10 years as a non-executive Director of Forrestania Gold NL and 20 years as
a non-executive Director of Kagara Ltd.
Mr Cozijn is currently a Non Executive Director of Carbon Energy, Oilex, Magma
Metals and Malagasy Minerals.
Marcello Cardaci - Non-Executive Director
Mr Cardaci is a partner in Gilbert + Tobin’s Corporate Advisory group. Mr Cardaci
advises on a range of corporate and commercial matters including public and private
equity fund raisings and public and private mergers, acquisitions and divestment.
Mr Cardaci also regularly advises on issues relating to the Corporations Act and
Australian Securities Exchange Listing Rules. He has cross-border experience, having
advised on numerous overseas transactions including capital raisings, takeovers,
schemes of arrangements and the structuring of acquisitions and joint ventures in
numerous countries.
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
17 of 19
Energia Minerals Ltd
(EMX $0.030) Spec. Buy, Initiation of Coverage
Analyst: Greg Chessell
Top 20 Shareholders
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Shareholders
Zero Nom PL
Asim Hldgs PL
Burns Elizabeth + A S
Jetosea PL
Pollara PL
Shl PL
Cairnglen Inv PL
Rentier Inv PL
Roberts John Barry + J E
Robinson Kim
Enterprise Uranium Ltd
Lomacott PL
Bsn Hldgs PL
Malvasia PL
Robinson Kim + Jennifer
Iannello Delia
Robinson Kim + Jennifer
Bell Potter Nom Ltd
Jayleaf Hldgs PL
Bridgelane Cap PL
Total
UNITS
77.56
72.95
58.33
32.92
17.50
17.00
11.67
9.33
8.75
8.72
8.51
7.50
7.00
5.83
5.78
5.75
5.70
5.25
5.00
4.80
375.85
as at 16/01/2015
%
12.73
11.98
9.58
5.41
2.87
2.79
1.92
1.53
1.44
1.43
1.40
1.23
1.15
0.96
0.95
0.94
0.86
0.82
0.79
0.70
61.48
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
18 of 19
Disclaimer
Contact Details
Euroz Securities Ltd
Copyright & Distribution
The material contained in this communication (and all attachments) is prepared for
the exclusive use of clients of Euroz Securities Ltd (ACN 089 314 983) (“Euroz”) only.
Euroz is the holder of an Australian Financial Services Licence (AFSL 243302) issued by
the Australian Securities and Investments Commission (“ASIC”) and is a participant of
the Australian Securities Exchange Group (“ASX Group”).
The information contained herein is confidential and may be legally privileged. If you
are not the intended recipient no confidentiality is lost nor privilege waived by your
receipt of it. Please delete and destroy all copies, and contact Euroz on (+618) 9488
1400. You should not use, copy, disclose or distribute this information without the
express written authority of Euroz.
Disclaimer & Disclosure
Euroz and its associates declare that they deal in securities as part of their
securities business and consequently may have a relevant interest in the securities
recommended herein (if any). This may include providing equity capital market
services to their issuing company, hold a position in the securities, acting as principal
or agent, or make a market therein and as such may effect transactions not consistent
with the recommendation (if any) in this report.
Euroz declares that it may have acted as an underwriter, arranger, co-arranger or
advisor in equity capital raisings, and will have received a fee for its services, for any
company mentioned within this report during the last 12 months.
You should not act on any recommendation issued by Euroz without first consulting
your investment advisor in order to ascertain whether the recommendation (if any)
is appropriate, having regard to your investment objectives, financial situation and
particular needs. Nothing in this report shall be construed as a solicitation to buy or
sell a security, or to engage in or refrain from engaging in any transaction.
Euroz believes that the information and advice contained herein is correct at the
time of compilation, however we make no representation or warranty that it is
accurate, complete, reliable or up to date, nor do we accept any obligation to correct
or update the opinions in it. The opinions expressed are subject to change without
notice. No member of Euroz accepts any liability whatsoever for any direct, indirect,
consequential or other loss arising from any use of this material.
We cannot guarantee that the integrity of this communication has been maintained,
is free from errors, virus interception or interference.
+61 8 9488 1400
International Toll Free
(If calling to Euroz from the following Countries)
Germany
0800 1800 554
Switzerland
0800 835 385
Hong Kong
800 900 936
Malaysia
1800 805 002
Singapore
800 6161 759
New Zealand
0800 441 271
USA
18 772 804 390
United Kingdom
08 000 929 851
Research Analysts
Greg Chessell - Head of Research
Gavin Allen - Industrials Analyst
Jon Bishop - Resources Analyst
Andrew Clayton - Resources Analyst
Richard Hamersley - Industrials Analyst
Michael Skinner - Resources Analyst
Julian Lake - Associate Analyst
+61 8 9488 1409
+61 8 9488 1413
+61 8 9488 1481
+61 8 9488 1427
+61 8 9488 1414
+61 8 9488 1431
+61 8 9488 1470
Institutional Sales
Andrew McKenzie - Executive Chairman
Rob Black - Managing Director
David Curnow - Executive Director
Jay Hughes - Executive Director
Russell Kane - Executive Director
Ben Laird - Executive Director
Simon Yeo - Executive Director
Peter Schwarzbach - Associate Director
Timothy Bunney - Institutional Adviser
Tom Ruello - Institutional Adviser
+61 8 9488 1407
+61 8 9488 1423
+61 8 9488 1422
+61 8 9488 1406
+61 8 9488 1426
+61 8 9488 1429
+61 8 9488 1404
+61 8 9488 1492
+61 8 9488 1461
+61 8 9488 1420
Private Client Advisors
James Mackie - Head of Private Clients
Tony Kenny - Executive Director
Tim Lyons - Executive Director
Lucas Robinson - Executive Director
Tim Weir - Executive Director
Ben Statham - Associate Director
Steve Grove - Associate Director
Giles McCaw - Associate Director
Cameron Murray - Associate Director
Ryan Stewart - Associate Director
Jonathan van Hazel - Associate Director
Christian Zerovich - Associate Director
Michael Bartley - Investment Adviser
Brian Bates - Associate Director
Paul Berson - Associate Director
Michael Bowden - Investment Adviser
Paul Cooper - Investment Adviser
Nick Dempster - Investment Adviser
Richard Gardner - Investment Adviser
Phil Grant - Associate Director
Jamie Mann - Investment Adviser
Duncan Relf - Investment Adviser
Brett Stapleton - Investment Adviser
Steve Wood - Investment Adviser
Nicholas Blakiston - Associate Adviser
David Salmon - Associate Adviser
+61 8 9488 1416
+61 8 9346 0302
+61 8 9346 0324
+61 8 9488 1424
+61 8 9346 0303
+61 8 9488 1417
+61 8 9488 1410
+61 8 9488 1462
+61 8 9488 1440
+61 8 9488 1441
+61 8 9488 1443
+61 8 9488 1436
+61 8 9346 0352
+61 8 9346 0314
+61 8 9346 0314
+61 8 9346 0307
+61 8 9346 0316
+61 8 9346 0357
+61 8 9488 1444
+61 8 9346 0306
+61 8 9346 0301
+61 8 9346 0322
+61 8 9488 1435
+61 8 9346 0305
+61 8 9488 1473
+61 8 9488 1419
All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility or liability on any
account whatsoever on the part of Euroz Securities Limited or any member or employee thereof. Refer to full disclaimer at the end of this document.
19
55 of 19
11