Impairments repaired
It seems increasingly likely that Mwana Africa, (MWA) will be obliged to review the value of its holding in Bindura Nickel (BNC). In FY13, it wrote the balance sheet value of its holding down to zero when Trojan was pursuing its original, relatively low-grade mine schedule. At the time, BNC had not signed off its accounts and was cash-flow negative. Shortly after Mwana’s write-down, however, BNC approved its revised, selective Massive Orebody mining campaign (which was approved and signed off as ‘reasonable’ and ‘achievable’ by consultants SRK in a competent person’s report in September 2013) and signed off its own accounts without any impairment at all. As a result, it seems increasingly likely that the US$43.7m impairment that Mwana made in FY13 will now be substantially reversed.
Short-term and long-term forecast revisions
Edison’s revised forecasts, assuming a 65% write-back of the BNC impairment, are shown overleaf. Self-evidently, there is no effect on either the valuation or underlying EPS in FY14 as a result of any impairment reversal although, on the basis of the reported measure of EPS, Mwana is now trading on a current year P/E multiple of around one! In addition to the impairment reversal, we have also updated our current quarter nickel head-grade forecast at Trojan from 1.73% to 1.67% (subsequent to a recent site visit) and our quarterly gold price forecast, which has resulted in a decline in forecast normalised EPS for FY14 from 0.67c to 0.60c. Of more significance, however, we have been able to revise our financial model to incorporate the results of the Massive Orebody mining campaign, which have recently been released. This involves mining 7,871kt over the life of Trojan’s operations at an average grade of 1.09% Ni (cf 8,154kt at 0.95% Ni previously), with a mass pull of 9.7% (vs 8.5%) and an improved nickel recovery of 82.38% (cf 81.76%) to produce 70,499t Ni in concentrate (vs 63,628t). As a consequence, Edison’s FY15 EPS forecast has increased from 1.23c to 2.17c.
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