Ram off to the races
Regency Mines' (LONDON:RGM) associate Ram Resources’ successful fund-raising has kick-started its existence as an independent, junior exploration company. The funding also gave Regency the opportunity to exercise its right to put a further 12.1% of its 20.0% free-carried interest in Fraser Range on to Ram for a consideration of 75.6m Ram shares, to take its total interest to 19.1%.
Commercial-scale DNi process valuation updated
In 2009, a scaled-up PFS by Aker Solutions concluded that the DNi Process could produce nickel from laterites at a rate of 34,000tpa at a capital cost of US$12.84/lb installed capacity and an operating cost of US$1.84/lb nickel produced. On a comparative basis, the opex estimate has since been updated by DNi’s Nickel Production Demonstration Programme to US$2.41-2.71/lb, principally as a result of an updated estimate of power costs and requirements. This may be mitigated in future by an adjustment for Indonesian labour costs and any potential, future optimisation of energy demand. It is also stated before by-product credits, which we estimate could amount to c US$0.90/lb Ni for cobalt, and management estimates could be worth a further US$1.71/lb Ni for magnesium oxide and US$1.52/lb Ni for hematite. Assuming a unit cost of US$2.71/lb and a concentrate grade of 32% Ni, we estimate a value of US$880m for a 20,000tpa operation at long-term prices and a 10% discount rate, or US$354m at current spot prices of US$18,200/t Ni and US$29,500/t Co. For a 10,000tpa plant the equivalent figures are US$440m and US$177m. A feasibility study is underway for a DNi Process plant to produce 10-20ktpa Ni in concentrate at PT ANTAM’s Buli operation in Indonesia, which supplied ore to the test programme.
Valuation: Nickel plated
In the wake of the Ram fund-raising, we calculate that the value of cash and listed assets at Regency is 0.11p per share. This rises to 0.47pps when other balance sheet items such as creditors, debtors, short-term borrowings, PPE and its interest in DNi (valued at market rates before its voluntary de-listing) are taken into account. Alternatively, Regency’s enterprise value of £3.9m or US$6.6m equates to just US$8.63 per tonne of attributable nickel resource from its 50% Mambare interest. If re-rated to peer resource multiples, the share price would rise to 1.4pps (excluding other assets). If DNi develops a third-party project at the parameters shown above as well, then Regency’s value increases to 1.7pps. Finally, if it develops Mambare at the parameters shown, then Regency’s value increases to anywhere from 4.3pps (10,000tpa at spot prices) to 20.2p (20,000tpa at long-term prices), excluding MgO and hematite by-product credits.
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