FRP upgraded to BUYRead this Analyst recommendation, FRP upgraded from HOLD to
BUY.
Target Price up from 0.80cents to
$1.35
https://www.frontierpacific.com/media/prv_1196793427.pdf
Tuesday, December 4, 2007
Frontier Pacific Mining Corporation (FRP-V: $0.75) Rating: BUY (from: HOLD)
Greek Government Intends to Grant Approval of Perama Hill EIS Target: $1.35 (from: $0.80)
Andrew Mikitchook, P.ENG., CFA 416.815.1622 amikitchook@westwindpartners.ca
Nana Sangmuah 416.815.3113 nsangmuah@westwindpartners.ca All figures in C$ unless otherwise noted
Sources: Company Reports, FactSet, Westwind Partners
Insight or Development
Frontier Pacific announced yesterday that the Ministry of the
Environment publicly informed the Parliament that the review of
the Environmental Impact Study (EIS) has been completed and a
draft “Joint Ministerial Decision” is awaiting approval from the
Joint Ministerial Council.
This is a significant public endorsement of the Perama Hills
project by the Greek government and appears that it will lead to
approval of the Environmental Terms of Reference to allow
development to proceed. In our opinion, this reactivates the
Perama Hills project with a visible development timeline, and as
such we are changing our rating to BUY from HOLD.
Analysis
The original EIS for Perama Hills was submitted in October 2000 –
yesterday’s public endorsement of the EIS by the government of
Greece, ahead of a final ETR sign-off, is clearly a major catalyst for
Frontier. The next step is the approval of the Environmental Terms of
Reference (ETR) draft decision, which is currently in front of the
Joint Ministerial Council. The ETR defines all the environmental
criteria under which the mine will operate and which will allow mine
development. Our understanding is that ETR approval should be
expected over the next several weeks. Conceptually, we would suggest
a conservative development timeline of construction in 2009 and
commissioning by mid-2010.
ETR approval will trigger mobilization of construction contractors and
final detailed engineering to update operating and capital costs. In
light of industry-wide capital costs inflation, we have adjusted our
valuation to increase capital costs by $120 MM, a 50% increase over
the 2003 feasibility study. We have also increased operating costs by
50%, but a strong silver by-product credit leaves the total cash costs at
just under $200 per ounce.
Using a 10% discount rate (instead of 5% for a feasibility level project)
to adjust for the remaining permitting risk, gives us a Project DCF
valuation of $198 MM. We assign a 1.2X multiple and include $85
MM of Corporate Adjustments to arrive at a $1.35 valuation. We
highlight that this valuation includes dilution from a $6 0MM equity
financing at $0.70 to raise 50% of the Perama Hills capex.
Conclusion
The increased visibility from the Ministerial announcement of the
completion of the review of the EIS is a significant positive catalyst
that should lead to ETR approval and restarting the development
timeline for Perama Hills. We are changing our rating to BUY from
HOLD and increasing our target to $1.35 from $0.80. We would
highlight that we remain conservative on timeline, capex and
operating costs assumptions and expect to be able to reduce the
discount in our valuation with final ETR approval and catalyst
delivery.