Positive pre-feasibility and maiden reserve
EurOmax Resources Ltd. (TO:EOX) has announced the results of the pre-feasibility study (PFS) on its Ilovitza gold project in Macedonia. Euromax also declared a maiden reserve for Ilovitza of 2.45Moz of gold and 905Mlb of copper. Euromax highlighted a cash flow distribution-based strategy, in which its free cash flow will be distributed to shareholders. Euromax will begin Phase 1 financing of US$30m non-equity funding due in August 2014 and will start engaging with banks early to raise Phase 2 financing of US$350m in debt project financing once the NI 43-101 is filed. Our updated valuation, based on the PFS data, the December resource statement and revised funding, is C$0.98/ share, up from our initiation value of C$0.40/share.
Ilovitza PFS complete
Based on the PFS, Ilovitza will be an open-pit mine with throughput of 10Mtpa over a 23-year life of mine (LOM). Based on the PFS, gold production is expected to be 95,000 ounces of gold a year, with a cash operating cost of US$216/oz and all-in costs of US$333/oz. These low costs are due to the net-off of copper by-product revenue. Annual average copper production is expected to be 16,000tpa. Initial capex is estimated at US$502m, with start-up production in 2017 and reaching full capacity in 2018. Gold reserves amount to 2.45Moz with 905Mlbs of copper.
Two phases of funding
Euromax intends to raise project finance against the asset rather than at the corporate level. The company will follow a two-phase funding approach. Phase1 of US$30m will be based on streaming and royalties and closes in August 2014, while Phase 2 will be US$350m project finance debt guaranteed by the German UFK scheme. The total capex requirement is US$502m leaving a shortfall of US$150m, which we assume will be financed using equity.
Valuation: C$0.98 (on a diluted basis)
We have updated our valuation of Euromax to take the PFS data into account. Our sum-of-the-parts valuation indicates that Euromax is worth C$0.98/share, relative to our previous valuation of C$0.40/share and the current share price of C$0.60. This valuation includes estimates of the full cost of financing, tax and dilution (based on debt/equity of 70% and an issue price of C$0.40 per share) at the corporate level. In addition to positive PFS numbers, this increase in our valuation is also due to the lower equity dilution as a result of a higher proportion of project finance coupled with a higher share price.
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