Mirabela Nickel Ltd Ord MRBAF

RBC Report

[wise_investor]

This is the analyst who never was strong on Mirabela. He is the bottom of the barrel. Never was involved in any of the financing, $2.50 A target. unchanged. This is the summary page of a 12 page report. I will provide others as I receive them.

I looked at the results and showed good progress from last quarter and forecasts better for next quarter. I am pleased. Things should improve as we go along.


Mirabela Nickel Limited (ASX: MBN; TSX: MNB)

Time Needed to Resolve Issues

Sector Perform

Above Average Risk

Price: 2.22

Shares O/S (MM): 367.2

Dividend: 0.00

NAVPS: 3.08

BVPS: 1.60

ROE: (8.0%)

Float (MM): 367.2

Debt to Cap: 42%

Price Target: 2.50

Implied All-In Return: 13%

Market Cap (MM): 815

P/NAVPS: 0.7x

P/BVPS: 1.4x

Enterprise Val. ($MM): 1,202.0

Avg. Daily Volume (MM): 1.40

Share price as at close on the ASX on 27 July 2010.

Event

June Q as expected, cash remains tight, corporate review underway. Retain

A$2.50 target and SP.

Investment Opinion

The June Q provided no surprises to us and our focus is on the commentary and

addressing of issues. Ian Purdy, the CEO, is clearly addressing problems and the

findings of a 6-8 week review will be particularly important. The chloritic zone is

more widespread than previously thought and the inability to ramp up mine

production is causing lower recoveries and higher unit costs. We remain cautious

near term, and would defer purchase.

• June Q: 2.3kt Ni at US$7.62/lb met our expectations, as did recoveries of 52%

and a head grade of 0.52%. Realised price of US$11.61/lb was ahead of spot

due to locking in QP settlements.

• Operations: Low mine productivity due to poor equipment availability is

largely maintenance driven. A lack of spare parts has kept shovel productivity

under 60%; the target is 80%. The inability to build a ROM stockpile and fully

feed the plant inhibits recoveries and hence unit costs.

• Chloritic Zones: This barren powdery material is within narrow, near vertical

faults, suppressing mill recovery. It comprises ~10% of feed and its extent,

particularly at depth, is unknown but actively pursued.

• Balance Sheet: Cash remains tight with US$40m and cash burn was A$9m in

the quarter. Balance sheet constraints are a particular problem (e.g., committing

to expansion to 6.4Mtpa) and a resolution is not expected near term. We do not

forecast cash build over FY11, while debt repayments begin March 2011.

• Corporate Review: An all-encompassing review of all aspects of the company

is underway for the next 6-8 weeks ranging from LOM operations through to

capital needs. The CEO aims to avoid band-aid solutions and we still believe

capital ~US$100m may be required later this year.

• Guidance: CY10 production is reduced to ~10.5kt vs 10.5-12.5kt previously.

Cash costs are to reduce in 2H but no guidance provided.

• Earnings Changes: More conservative costs ~US$5/lb reduce earnings in

CY11E and CY12E by around 20%. We forecast a loss of A$13m this year.

• Valuation: We maintain our A$2.50 target on unchanged multiples of 0.8-0.9x

NAV, a discount to comparable peers to accommodate project ramp-up.