RE:PFS is outSome positivity from H.C. Wainwright:
FF.TO: Price: C$0.42; Market Cap (M): C$288
Rating: Buy; Price Target: C$1.20
Heiko F. Ihle, CFA
Tyler Bisset
Marcus Giannini
PFS Provides Strong Operational Scenario Over LOM; Favorable Base Case Economics Amid Low Unit Costs; Reiterate Buy
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Further de-risking Springpole with favorable results of pre-feasibility study (PFS). On January 20, 2021, First Mining announced PFS results for its 100%-owned Springpole Gold Project in northwestern Ontario. The PFS represents a significant milestone in the de-risking and advancement of Springpole as First Mining is declaring Springpole's mineral reserves for the first time. The study further provides a comprehensive look into the potential profitability of developing the mine given its strong sensitivity to gold pricing. Notably, Springpole maintains an 11.3 year mine life under the PFS with an average annual life of mine (LOM) gold production profile of 287,000 ounces (oz). Additionally, the company expects to recover 1.6Moz of silver per year in this LOM scenario. In short, this strong production profile is likely to provide for an economically robust mining operation within a geographically favorable mining jurisdiction.
Base case scenario provides strong potential returns. Assuming a gold and silver price environment of $1,600/oz and $20/oz, respectively, Springpole maintains an after-tax net present value (NPV), utilizing a 5% discount rate, of $995M. Further, the project economics provide an after-tax IRR of 29.4% over a modest 2.4 year payback period with total LOM cash flow reaching $1.6B. Utilizing prices that more reflect current market conditions, the site looks even better. As an example, utilizing a $1,800/oz gold price (which is still below spot pricing) the project realizes a 31% increase in its after-tax NPV to $1.3B. Looking ahead, First Mining management is continuing to successfully improve the economic potential at Springpole and make a case for continued investment at the site.
Manageable upfront and sustaining capital costs amid low unit costs. The Springpole PFS maintains a surprisingly modest cost profile, relative to the size of the potential operation, with initial capital costs estimated at only $718M, sustaining costs of $55M, and $29M in closure costs. From a unit cost standpoint, the project is estimated to maintain a $645/oz of gold all-in sustaining cost over its LOM which yields strong potential for favorable margins.
Opportunities for project improvement. While we view the PFS results as positive, the study also identified various circumstances to enhance the economics of Springpole. As an example, we note the opportunity for a conversion of indicated resources into probable reserves, which may then be evaluated in a feasibility study. There is also the potential for a refined pit, which could further reduce the overall strip ratio and the chance for improved metallurgical recoveries through technological improvements. We highlight that the PFS recognizes meaningful potential for an enhanced hydrogeological and geotechnical understanding, which could increase pit slope angles, and reduce costs associated with mining waste. Lastly, we emphasize the existence of underexplored geophysical targets surrounding the current resource, which could provide additional mineable mineralization.
We are reiterating our Buy recommendation on First Mining shares and maintaining our price target of $1.20 per share. Our valuation remains based on a DCF at Springpole, utilizing an unchanged 13.5% discount rate, that is based on the longer-term nature of the asset. The discount rate remains inline with similar assets in areas carrying equal geopolitical risk factors. We continue to value First Mining’s remaining Tier 1 and 2 assets at an unchanged valuation of $25 per gold equivalent ounce (GEO), for a total of C$157.8M. We also ascribe a C$23.1M valuation for the Tier 3 assets owned by the company. We then add First Mining's cash balance of C$32.5M, in addition to First Mining's ownership of First Majestic (AG; Buy) and Treasury Metals (TML.TO; not rated) shares, before subtracting de minimis amounts of debt, to arrive at our rounded final price target of C$1.20 per share. In short, the results from First Mining's PFS reiterate the economic potential of the Springpole project. Looking ahead, we expect to see ongoing de-risking at site in preparation for a potential feasibility study that should be eased by the company's strong cash position.
Risks. Commodity price risk; political risk; financing risk; operational and technical risks.