morning coffee (canaccord) Firesteel announced their PEA this morning on the new Laiva mine they purchased. The Coles Notes version is:
Pre-tax IRR, (Internal Rate of Return): 44.6%,
NPV, (5% discounted Net Present Value): US$91.5 million or C$0.75/share
Payback: 1.7 years
Pre-production CAPEX: $7.1 million
76,000 ounces per year of annual average gold production
Cash Cost: $863/ounce
AISC, (All-in Sustaining Cost): $974/ounce
Mill grade is 1.45 g/t and recovery factor is 90.4%
Life of mine production: 456,600 ounces over a 6 year mine life
*** The Finnish subsidiary that holds the mine which Firesteel owns 100% of has EUR 131,716,248 in Finnish tax losses so the this should realize the pre-tax NPV of $0.75/share. That means if Firesteel just produced according to this PEA there would end up being US $91.5 million in cash in Firesteel’s bank account at the end of 6 years.
*** Firesteel notes the expansion potential of the mine by targeting 3 near mine open pits. These are within 1-3 kilometers of the mill so it’s a very short haul distance over flat ground. The previous owner outlined a total 1.1 million ounces and this can likely be expanded to 2 million ounces which would significantly extend the life of the mine to over 20 years depending on how much of that is economically mineable.
If Firesteel produces 76,000 ounces/year, (then subtract 11,000 ounces/year for the gold forward repayment), at an all-in sustaining cost of $974/ounce and sells their gold at US$1300 it equates to C$27.5 million/year or about $0.17/share assuming about 160 million shares outstanding. That is the undiscounted annual cash flow. Most junior producers of this size trade at about 4x cash flow, (see attached).
The juniors trade at a 5% discounted NAV of 0.56x. That’s a little different than 5% NPV but fairly close. Firesteel trades at 0.2x by comparison. The average would imply a $0.42 share price for Firesteel.
The cash cost of Firesteel is a little on the higher side compared to others but comparable to other miners such as Asanko, Gran Colombia, and RoxGold.
Atlantic Gold is most comparable in terms of production, trades at 0.51x NAV, just started production in Nova Scotia, it has a lower cash cost and AISC, ($420/oz and $585/oz which makes their mine more profitable), but also a lot more debt with $115 million owing, similar grade and recovery rates, and 2.22 million ounces of resources at present, (likely expandable and I believe Firesteel could get to about 2 million ounces mineable). Atlantic Gold has an Enterprise Value of $450 million, (market cap plus net debt), and likely going a lot higher. On a cash flow basis this projects Atlantic Gold to make $1.573 billion versus Firesteel at $652 million on 2 million ounces so I wouldn’t say that Firesteel would rival Atlantic Gold for total valuation but there is a clear path to valuation upside on a similar type project. Atlantic went from a $0.20 stock in the summer of 2015 to about $1.90 today and going up.
From the news release:
Michael Hepworth, President and CEO of Firesteel commented; "The release of the details of this study is an important milestone. Although we had previously conducted an extensive internal study used for financing and had already made the decision to advance to production, for the benefit of the market, we needed confirmation from a more formal study. In addition, the three exploration properties offer significant blue-sky exploration potential. It is our intention to more fully explore these properties with an extensive drill program in early 2019. Our goal is to have additional pits close to the mill."