Werbung
www.kryso.com/notes/...20Research%20-%20March%202008-04-30.pdf
Kryso’s share capital consists of 79.239 million ordinary shares and 2.72 million share options and warrants outstanding. Those holding more than 3% of the current issued share capital are:
Name % Holding
Directors 27.07
Great Basin Gold 15.03
Simon Cawkwell 3.76
SPGP (Societe Privee Gestion De Patrimoine) 3.16
Significant Shareholdings
The company’s most recent results covered the six months to 30th June 2007 and showed an increased loss of $0.315 million, up from $0.104 million in the first half of 2006. The basic and diluted loss per share amounted to 0.47 cents per share, up from 0.19 cents. The increased loss was attributable to a decrease in foreign exchange gains during the period and an increase in corporate costs. During the period $0.991 million of site expenditure was capitalized, which included drilling, trenching and underground development work. The financial position of the company reflected the continued exploration and development activity at its Pakrut prime asset. The company’s net asset base increased during the period to $10.637 million, up from $9.279 million 12 months previously. The company reported a net cash position of US$1.12 million at the period end. During the reporting period, the company continued its feasibility study and ongoing resource development programme at the Pakrut gold project and with initial exploration of the Hukas nickel-copper project. In October 2007 the company raised an additional £1.46 million in a placing at 11.5p.
Strategy
Kryso’s stated objective is to develop and bring the Pakrut Gold Deposit into production by the end of 2009, whilst continuing to explore the 63 square kilometres of the Pakrut Ore Field. Mineralization remains open to the north, north-east and east of the Pakrut Gold deposit where the presence of three mineralized systems within five kilometres of the Pakrut gold deposit provide further exploration upside for new discoveries of ommercial gold deposits. The Rufigar prospects, the Eastern Pakrut gold prospect and the Sulfidnoye gold and silver prospect provide an exciting opportunity for Kryso to increase and upgrade the resource base at Pakrut and extend the mine life of the project. As we noted above, an extension to 10 years would have a massive impact on the NPV of the project.
Valuation, Forecasts and Conclusion
This is a company which is likely to be loss making until 2010, but which could be generating free operational cashflow of $40 million per annum thereafter. The current market capitalisation is, on a fully diluted basis, less than £13 million which cannot discount the potential for future cashflows from Pakrut. Our base case valuation of Kryso stems from a 6-year net present valuation model of the Pakrut gold project using
a 10% discount factor. The parameters of the model assume a minimum life of 6 years processing 1.46 Mt of ore per annum with production start-up in the last quarter of 2009. A production of 4,000 tpd total from both the pit and underground mining was adopted in the model in line with the company’s pre-feasibility study. 2010 is set to be the first full year of production for Pakrut with an estimated 130,000 oz gold per annum produced. In our model we have made an allowance for initial production delays, factoring a 100,000 oz gold for 2010, increasing to 130,000 p.a. in the following five years. Gold prices included in the model are consistent with the gold price (Au/oz) forecasts used in Kryso’s feasibility study, which are based on average predictions of seven major investment banking institutions.
These are $868.54 (2008), $876.83 (2009), $920.60 (2010), $1,033.50 (2011), $997.50 (2012) and $650 (2013-2015). With gold now trading at $950 oz we believe our assumptions to be conservative. Our forecast of operating costs, using the average $291/oz produced estimated costs, come to $225.525 million over a 6-year life mine, whilst we estimate the company to incur about $5.6 million finance costs during the life of the mine.
We expect the company to finance the $65 million start-up capital requirement through a combination of equity/debt fundraising undertaken this year. In our model, we assume that the company raises $20 million in equity at around 20p per share, with the remaining $45 million being raised through debt. Our model expects the debt to be
repaid within 3 years of operations, leaving substantial free cashflow in the region of $30-US$40 million per annum for the remainder of the six-year minimum mine life. Taking into consideration royalties on gross revenues of 5% and corporation tax of 25%, our net present value using a 10% discount factor for the Pakrut gold project based on
the existing 1 million oz gold resource is $128.71 million or 49.5p per share on a fully diluted basis (around 133.24 million shares).
The political sensitivities in Tajikistan and the wider region cause us to be cautious and as a result we apply an additional 25% risk factor to account for these uncertainties and that leaves a base case valuation of 37p on a fully
diluted basis.
However it must be stressed that this is a base case valuation. We have attributed no value at this stage to the promising but very early stage Nickel-Copper deposit at Hukas. More critically we have also assumed only a six-year mine life at Pakrut. The core strike zone remains open in three directions and there are numerous other prospects within the licence area. Thus it is perfectly plausible to believe that Pakrut could operate at the same level of output and with a similar cost structure but without the needs for significant additional capital expenditure for well in excess
of six years. A longer mine life and/or increased output would have a material impact on our estimates of the NPV of this project.
We have prepared a separate model where we assumed that the company could increase its resource base to 1.5 million oz, a feasible prospect, given the deposit size indicated in the GeoLogix model, which has a mine life of some 12 years and an average daily mining rate of some 3,000 tpd. Our 10-year model, using similar assumptions to our
six-year model of Pakrut, estimates a net present value of $192.18 million or 74p on a fully diluted basis and the 25% risk weighted valuation is $144.14 million or 55p per share on a fully diluted basis. Whilst we continue to recognize that the company faces a number of hurdles before developing the Pakrut gold project into an asset ready to go into production, notably its ability to source additional finance, the completion of the PFS and the imminent completion of a BFS are important milestones for Kryso. At 14.25p, we initiate our coverage of Kryso Resources with a speculative buy recommendation and a base case target price of 37p.
Kryso’s share capital consists of 79.239 million ordinary shares and 2.72 million share options and warrants outstanding. Those holding more than 3% of the current issued share capital are:
Name % Holding
Directors 27.07
Great Basin Gold 15.03
Simon Cawkwell 3.76
SPGP (Societe Privee Gestion De Patrimoine) 3.16
Significant Shareholdings
The company’s most recent results covered the six months to 30th June 2007 and showed an increased loss of $0.315 million, up from $0.104 million in the first half of 2006. The basic and diluted loss per share amounted to 0.47 cents per share, up from 0.19 cents. The increased loss was attributable to a decrease in foreign exchange gains during the period and an increase in corporate costs. During the period $0.991 million of site expenditure was capitalized, which included drilling, trenching and underground development work. The financial position of the company reflected the continued exploration and development activity at its Pakrut prime asset. The company’s net asset base increased during the period to $10.637 million, up from $9.279 million 12 months previously. The company reported a net cash position of US$1.12 million at the period end. During the reporting period, the company continued its feasibility study and ongoing resource development programme at the Pakrut gold project and with initial exploration of the Hukas nickel-copper project. In October 2007 the company raised an additional £1.46 million in a placing at 11.5p.
Strategy
Kryso’s stated objective is to develop and bring the Pakrut Gold Deposit into production by the end of 2009, whilst continuing to explore the 63 square kilometres of the Pakrut Ore Field. Mineralization remains open to the north, north-east and east of the Pakrut Gold deposit where the presence of three mineralized systems within five kilometres of the Pakrut gold deposit provide further exploration upside for new discoveries of ommercial gold deposits. The Rufigar prospects, the Eastern Pakrut gold prospect and the Sulfidnoye gold and silver prospect provide an exciting opportunity for Kryso to increase and upgrade the resource base at Pakrut and extend the mine life of the project. As we noted above, an extension to 10 years would have a massive impact on the NPV of the project.
Valuation, Forecasts and Conclusion
This is a company which is likely to be loss making until 2010, but which could be generating free operational cashflow of $40 million per annum thereafter. The current market capitalisation is, on a fully diluted basis, less than £13 million which cannot discount the potential for future cashflows from Pakrut. Our base case valuation of Kryso stems from a 6-year net present valuation model of the Pakrut gold project using
a 10% discount factor. The parameters of the model assume a minimum life of 6 years processing 1.46 Mt of ore per annum with production start-up in the last quarter of 2009. A production of 4,000 tpd total from both the pit and underground mining was adopted in the model in line with the company’s pre-feasibility study. 2010 is set to be the first full year of production for Pakrut with an estimated 130,000 oz gold per annum produced. In our model we have made an allowance for initial production delays, factoring a 100,000 oz gold for 2010, increasing to 130,000 p.a. in the following five years. Gold prices included in the model are consistent with the gold price (Au/oz) forecasts used in Kryso’s feasibility study, which are based on average predictions of seven major investment banking institutions.
These are $868.54 (2008), $876.83 (2009), $920.60 (2010), $1,033.50 (2011), $997.50 (2012) and $650 (2013-2015). With gold now trading at $950 oz we believe our assumptions to be conservative. Our forecast of operating costs, using the average $291/oz produced estimated costs, come to $225.525 million over a 6-year life mine, whilst we estimate the company to incur about $5.6 million finance costs during the life of the mine.
We expect the company to finance the $65 million start-up capital requirement through a combination of equity/debt fundraising undertaken this year. In our model, we assume that the company raises $20 million in equity at around 20p per share, with the remaining $45 million being raised through debt. Our model expects the debt to be
repaid within 3 years of operations, leaving substantial free cashflow in the region of $30-US$40 million per annum for the remainder of the six-year minimum mine life. Taking into consideration royalties on gross revenues of 5% and corporation tax of 25%, our net present value using a 10% discount factor for the Pakrut gold project based on
the existing 1 million oz gold resource is $128.71 million or 49.5p per share on a fully diluted basis (around 133.24 million shares).
The political sensitivities in Tajikistan and the wider region cause us to be cautious and as a result we apply an additional 25% risk factor to account for these uncertainties and that leaves a base case valuation of 37p on a fully
diluted basis.
However it must be stressed that this is a base case valuation. We have attributed no value at this stage to the promising but very early stage Nickel-Copper deposit at Hukas. More critically we have also assumed only a six-year mine life at Pakrut. The core strike zone remains open in three directions and there are numerous other prospects within the licence area. Thus it is perfectly plausible to believe that Pakrut could operate at the same level of output and with a similar cost structure but without the needs for significant additional capital expenditure for well in excess
of six years. A longer mine life and/or increased output would have a material impact on our estimates of the NPV of this project.
We have prepared a separate model where we assumed that the company could increase its resource base to 1.5 million oz, a feasible prospect, given the deposit size indicated in the GeoLogix model, which has a mine life of some 12 years and an average daily mining rate of some 3,000 tpd. Our 10-year model, using similar assumptions to our
six-year model of Pakrut, estimates a net present value of $192.18 million or 74p on a fully diluted basis and the 25% risk weighted valuation is $144.14 million or 55p per share on a fully diluted basis. Whilst we continue to recognize that the company faces a number of hurdles before developing the Pakrut gold project into an asset ready to go into production, notably its ability to source additional finance, the completion of the PFS and the imminent completion of a BFS are important milestones for Kryso. At 14.25p, we initiate our coverage of Kryso Resources with a speculative buy recommendation and a base case target price of 37p.
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