MMY-TSXV Initiation Report (10-22-2010)

Transcription

Equity Research
October 22, 2010
Monument Mining Limited
Rating: BUY
Target Price: C$0.82
(MMY-TSXV)
A New Gold Star Rising From The Far East
All figures in C$, unless otherwise noted
Recent Price:
52 Week Range
Shares O/S
basic (MM):
f.d. (MM):
Market Cap (MM):
Net Cash (Estimated) (MM):
Enterprise Value (MM)
Fiscal Year End:
Financials
Production (Oz 000’s)
Revenue (US$MM)
Cash Flow/Share
Price/Cash Flow
$0.49
$0.24 - $0.54
170
319
$83
$15
$68
Jun. 30
2011E
29
$35
C$0.06
8.5x
2012E
38
$43
C$0.07
6.7x
Commodities
2011E
Gold (average in US$/oz) $1,200
2012E
$1,150
Company Description: Monument Mining Ltd.,
together with its subsidiaries, engages in the
exploration and development of gold mineral
properties in Malaysia. It owns 100% interests in
the Selinsing Gold Mine and the Damar Buffalo
Reef exploration prospect. It recently acquired a
100% interest in the Famehub exploration
prospect located to the north of Buffalo Reef and
east of the Selinsing gold mine.
Jeff Wu, CFA
Mining Analyst
604-697-2455
[email protected]

Announced Commercial Production Ignites Monument’s Growth
Engine: By entering commercial gold production, Monument Mining
will start to generate stable cash flow and will be able to catch up
on exploration and development delays from the past three years
due to financial constraints. Substantial incremental gold resources
are expected to be released by the company in the near future.

The Company Is Targeting To Become A Mid-tier Gold Mining
Company On Both Resource and Production: By re-starting the
exploration programs and preparing to double its processing
capacity in two years, Monument Mining is ready to pass its first
million-ounce gold resource milestone in the near future and is
expected to reach its annual gold production target of 100,000
ounces in the next three years.

Nearly 70% Upside Potential Toward Its Intrinsic Value: Based on
our financial forecasting model, Monument Mining’s stock price is
trading at 0.6x NAV, a significant discount to other junior gold
producers. We initiate coverage on Monument Mining with a BUY
recommendation and a $0.82 price target based on a 1x NAV
multiple.
Source: www.bigcharts.com
Please see end of this report for important disclosures
INVESTMENT HIGHLIGHTS

A new gold producer still valued as an early-stage mining company: On
September 20, Monument Mining officially announced commercial gold
production. The company is expected to disclose its first monthly gold
production in November. However, Monument’s current stock price is still
trading at 0.6x NAV, levels normally reserved for exploration and development
companies in the gold sector, and significantly below the current average
price/NAV ratio (1–1.5x) for junior gold producers. The market is expected to
realize Monument’s intrinsic value in the next several months when it begins
disclosing monthly gold production.

Near-term financial results may beat expectations thanks to the tax break:
Since the Selinsing Gold Mine can enjoy a five-year tax break, Monument`s
management team has strong incentives to maximize the mine’s near-term
profits by mining higher-grade gold ores in early years. Therefore, it is highly
possible that Monument’s near-term financial results will exceed the market’s
expectation.

Updated NI 43-101 report is expected to greatly enhance MMY’s resources: By
re-starting the exploration programs at Selinsing and Damar Buffalo Reef,
Monument is expected to publish an updated NI 43-101 compliant resource
report by the end of 2010. After three years of accumulation and preparation,
the company’s value is expected to be significantly enhanced, thus delivering a
brand-new prosperity to its shareholders.

Incremental gold resources will generate long-term upside potential: The newly
acquired Famehub exploration land is over 10 times larger than Monument’s
other exploration properties, and is located to the north of Buffalo Reef along
trend and east of the Selinsing Gold Mine. Since our valuation model only
includes NI 43-101 compliant resources in Selinsing, the newly acquired
Famehub Land and existing resources in Damar Buffalo Reef are expected to
bring investors more positive surprises and long-term upside potential.
Jeff Wu, CFA  604-697-2455  [email protected]
Page |2
INTRODUCTION
Overview
Monument Mining Limited, together with its subsidiaries, engages in the exploration and
development of gold mineral properties in Malaysia. It owns 100% interests in the
Selinsing Gold Mine Project comprising two mining leases covering approximately 170
acres located at Bukit Selinsing near Sungai Koyan; and the Damar Buffalo Reef
exploration prospect consisting of two contiguous tenements totalling some 2,050 acres
located in Pahang State, Malaysia. The company recently acquired a 100% interest in the
Famehub exploration prospect consisting of approximately 32,000 acres located north of
Buffalo Reef and east of the Selinsing Gold Mine.
Monument’s current flagship asset is the Selinsing Gold Mine Project, an open-pit gold
mine with low operating costs. The company held a 100% interest in the Selinsing
property with a 5% royalty payable to the Malaysian government. With the official
announcement of full commercial production at the mine in September 2010, Monument
Mining successfully transformed itself from an exploration and development company
into a real gold producer.
The existing designed production capacity is 400,000 tonnes per year with annual gold
production at around 40,000 troy ounces. Monument is expected to expand the plant’s
capacity to 800,000 tonnes per year in two years. With the expected expansion plan,
Monument’s annual gold production can reach 75,000–100,000 troy ounces in three
years. The expected life of mine (LOM) of Selinsing property is seven years based on the
historic resources.
Since the Selinsing property is adjacent to Monument’s other exploration lands, the life of
the Selinsing treatment plant can be significantly lengthened if more economic resources
are delineated in Selinsing’s surrounding exploration land properties.
Based in Vancouver, Monument Mining’s management team is led by President, CEO and
Director Robert Baldock who is a turnaround specialist. Mr. Baldock has assembled an
excellent management team to complement himself with strong track records in the
industry. Profiles on members of the management and the board can be found in
Appendix I.
Company History
Monument was incorporated by by-Laws and articles pursuant to the Alberta Business
Corporations Act under the name Quick Fire Venture Capital Corporation on March 11,
1997. On April 7, 1998, the company changed its name to AM Technologies Limited. On
June 21, 2002, after a reverse takeover business combination, it changed its name to
Moncoa Corporation and continued under the Canada Business Corporations Act. On
June 25, 2007, the company closed a major transaction and since then has changed its
principal business to gold mineral property development and exploration.
The company’s previous principal business was monitoring and co-ordinating clinical trials
for pharmaceutical and medical device companies throughout Canada. On May 3, 2005,
the company initiated a major business transaction by signing a Letter of Intent (“LOI”) to
acquire gold mining assets in Malaysia and entering into an agreement to dispose its
Page |3
previous medical business through the sale of its subsidiaries. Although the transaction
was defined as a business Reverse Takeover (RTO), it has not been accounted for as a RTO
transaction for accounting purposes since the shareholders’ group under the acquired
company that holds the Selinsing gold property did not have more than 50% of the
company’s voting shares at completion of the transaction. The major transaction was
approved by the shareholders at the annual shareholders meeting on October 25, 2006.
In connection with the above transactions, the shareholders also passed a special
resolution to consolidate the existing Moncoa shares on a one-new for two-old share
basis, to be effective prior to closing the major and the concurrent acquisition financing,
together with a change of name to Monument Mining Limited. Its primary activities after
the major transaction include pre-construction activities related to the engineering design
of the processing plant for the Selinsing Gold Project and exploration on the Damar
Buffalo Reef exploration prospect.
In August 2010, through its wholly owned subsidiary Damar Consolidated Exploration Sdn
Bhd, the exploration arm of Monument’s Malaysian group of companies, Monument
acquired the Famehub Property by purchasing 100% of the issued and outstanding shares
of Famehub Venture Sdn Bhd, a company incorporated in Malaysia. Famehub has rights
to approximately 32,000 acres of prospective exploration land to the north of Buffalo
Reef along trend and east of the Selinsing gold mine. Famehub also owns a package of
technical information and exploration databases in respect to the subject property.
MANAGEMENT AND DIRECTORS
(FULL BIOS CAN BE FOUND IN APPENDIX I)
Robert F. Baldock
Executive Officer, President & CEO, Director
George Brazier
Chairman, Director
Cathy Zhai
Executive Officer, Corporate Secretary, CFO & Vice President
Zaidi Harun
Executive Officer, Vice President Exploration, Director
Scott Ladd
Vice President Business Development
Kevin J. Wright
General Manager, Mine Manager
Mike Kitney
Project Manager
Adam Bradley
Director
Graham Dickson
Director
Richard Cushing
Investor Relations
Selinsing Gold Project
History
The Selinsing deposit has a long mining history. While work at the site had been ongoing
since the mid-1800s, the mine was closed from 1939 to 1987 when it was reworked by
Tshu Lian Shen Mining Sdn. Bhd. (TLSM). TLSM mined the Selinsing deposit from 1987 up
to mid-1996 concentrating mainly on high-grade quartz veins with visible gold and highergrade halo ore. Ore grade control was carried out by panning the ore and assessing the
ore grade visually. The ore was initially crushed in a single small ball mill with the ore feed
passing over a series of palongs (wooden riffle chutes) to concentrate the gold. The
Page |4
concentrate from the palongs was then fed over a series of Wilfley shaking tables to
remove the gold. The tails were discharged directly into the tailings ponds from the
palongs. This set-up was initially satisfactory but as the oxide ore was depleted, more ball
mills were required to keep the ore throughput at the same level. By the end of TLSM’s
involvement there were four ball mills operating but gold production levels were still
declining. This was due to the inability of the technology being used to adequately
liberate the gold. TLSM was also experiencing mining difficulties in the pit with the
exhaustion of free digging high-grade ore. As a result of this, some experimentation was
carried out using explosives, but this was minimal due to a lack of experience in this field.
TLSM’s total production has been estimated at approximately 50,000 ounces of gold.
In 1997, the Selinsing Mining Joint Venture, consisting of TRA Mining (Malaysia) Sdn. Bhd.
(TRA) and Trident (formerly Tshu Lian Shen Mining Company), formed an incorporated
company known as the Selinsing Mining Joint Venture Sdn. Bhd. to manage the interests
of both parties. TRA became involved in the project in May 1996, when it commenced
drilling. TRA completed several campaigns of drilling and undertook a feasibility study into
the Selinsing Project in 1999. Treatment of the tailings began in 2003 and gold
production was 1,298 ounces, 3,742 ounces and 1,584 ounces in 2003, 2004 and 2005,
respectively.
On June 25, 2007, through its wholly-owned Malaysian subsidiary, Polar Potential Sdn.
Bhd., Monument acquired 100% of the Selinsing Gold Property including two mining
concessions from Wira Mas Trust, together with a 100% interest of Able Return Sdn. Bhd.,
the former Trustee of Wira Mas Trust, a Malaysian company holding Malaysian Pioneer
status which, among other benefits, provides a five-year tax break from Malaysian federal
taxes and other taxes. The total acquisition cost of $29,195,241 comprised $3,500,000
cash, a promissory note of $9,000,000 valued at $8,181,818, the issuance of 31,400,009
fully paid treasury shares at an ascribed value of $0.50 per share, and 5,000,000 share
purchase warrants.
Property Description
Malaysia
Peninsular Malaysia can be divided into two main regional blocks separated by the Raub–
Bentong Line, which is a major suture zone. This fault zone divides the Sibumasu Block
(Western Block) in the west from the Manabor Block (Eastern Block) in the east. By the
late Carboniferous, the Western Block was attached to a continent, possibly Gondwana,
and the eastern margin was occupied by a shelf that quickly gave way to open ocean.
By Late Carboniferous to Early Permian, westward subduction of oceanic lithosphere
beneath the Western Block close to the Raub–Bentong suture was initiated. Riding on this
oceanic lithosphere were many continental fragments, which were accreted onto the
Eastern Block to form the Timur and Tengarra Foreign Terranes. This subduction led to
the granitic intrusion that now makes up the Western Tin Belt.
By the Early Triassic, subduction was re-initiated along a new zone to the east. Goldbearing fluids are believed to have been released as oceanic lithosphere was subducted
beneath the newly accreted wedges of shelf carbonates and marine sediments. These
fluids migrated upwards along large regional fractures cutting the sediments that were
newly accreted onto the eastern margins of the Western Block and deposited the gold
Page |5
deposits which constitute Yeap’s “Gold Belt 2”. Yeap’s Gold Belt 2 or the Berching – Raub
– Bersawah Gold Belt is the best defined of the four gold belts. In terms of historical gold
production this belt is the most significant as the Raub Australian Gold Mine produced an
estimated one million troy ounces of gold bullion between 1889 and the 1960s.
Exhibit 1: Location Map
Source: Monument Mining Limited
Selinsing Project
The Selinsing project is located in the Malaysian state of Pahang. The two mining leases,
MC1/124 and MC1/2005 located at Bukit Selinsing near Kg Sungai Koyan, cover an area of
about 170 acres and are located about 65 kilometres north of Raub and 30 kilometres
west of Kuala Lipis on the lineament known as the Raub Bentong Suture.
Exhibit 2: Landscape of Selinsing Property
Page |6
The central Malaysian peninsula has a tropical climate, with an annual temperature
ranging between 23° and 36° Celsius. Annual rainfall averages approximately 230
centimetres. Peak rainfall periods are September–December and March–May. The
Selinsing Project is approximately 400 metres above sea level and the surrounding area
has relatively moderate to gentle relief. Land use around the site is primarily agricultural.
There is a five-year tax break for the Selinsing property, and a government royalty of 5%
of gross operating revenue is payable to the Malaysian government.
Exhibit 3: Historical Resources for Selinsing Gold Deposit (2007)
* Based on Snowden Mining‘s “Preliminary Assessment Selinsing Gold Project“(2007)
Mineralization
Gold mineralization at the Selinsing project is in the form of very fine gold particles
commonly associated with pyrite and arsenopyrite and rarely with chalcopyrite. Coarse
visible gold occurs in quartz veins within the shear zone and these can have gold grades
well in excess of one ounce per tonne. These high-grade quartz veins can be over one
metre in true thickness and are quite continuous along strike and down-dip. These veins
have been traced up to 300 metres along strike and over 200 metres down-dip. Lowergrade gold mineralization is found in the intensely deformed and crushed halos around
the quartz veins within the shear zone. Disseminated pyrite mineralization in the crushed
country rock in the shear zone is common and this mineral, along with the presence of
euhedral arsenopyrite, is a good indicator of higher gold grades.
Exhibit 4: Selinsing Cross Section 1980 mN
Page |7
Mining
In 2007, based on the geologic data at the Selinsing Gold Deposit and the preliminary
geotechnical assessment for the Selinsing open pit undertaken in 1997 by Golder
Associates for Target Resources Australia NL (TRA), Snowden Mining Industry Consultants
(“Snowden”) designed an open-pit mine to access the resources using inputs from
Snowden and other external experts. Their work generated a mine schedule for
exploitation of the resource over a period of 4.5 years. Snowden independently reviewed
the key inputs to the mineral resource and ore reserve estimates and considered the
project economics to be robust under the assumptions used to generate the cash flow
model.
The Stage 1 mining scheme and blasting permit for Selinsing were granted by the Mineral
and Geosciences Department of Pahang State, Malaysia, in July 2009. Monument
awarded the mining contract to Minetech Construction Sdn Bhd followed by contractor
mobilization, main access road construction, dump site clearing and stock pile levelling for
Stage I and II open-pit mining operations.
Exhibit 5: Design of Selinsing Gold Open Pit
The open-cut mining method is expected to generate a recovery rate of 92–95% for both
oxide and sulphide material with a stripping ratio of 3.25 supported by the hill.
Mining excavation started in July 2009 by removing slide material from 500 metres RL at
the eastern slope of the pit, while dewatering an old mining area and sampling drilling at
557 m RL. The mined ore of 75,262 tons for fiscal Q1/10 was initially lower than expected
due to low fleet availability. This was improved in the following quarters. Total ore mined
in fiscal 2010 was 662,330 tons.
Page |8
Exhibit 6: Selinsing Gold Open Pit
Source: Byron Capital Markets
Processing
In October 2008, Monument announced a strategic move to construct a 1,200-tonne-perday (tpd) gold treatment plant at Selinsing, targeting commercial gold production by
December 2009. In December 2008, the original gold plant construction plan was
amended into two phases, due to default of delivery of the $10 million credit facility
caused by the worldwide financial crisis: the Phase I gravity plant was to be constructed
using cash on hand, and Phase II CIL (carbon in leach) plant was to be funded by the cash
generated from the gravity plant and/or additional capital raising. The plant construction
budget remained at $17 million.
The Phase I gravity plant was fully commissioned and placed into pre-commercial
production during fiscal Q2/10, some 10 months after construction began. The overflow
from the gravity plant is stockpiled for further processing through the CIL plant when it is
completed. During fiscal Q3/10, the gravity plant was running steady at the designed
capacity, and the cash generated from the gravity plant production was used to fund the
CIL plant construction. The production costs and associated revenue were recorded
against Selinsing mineral property development and plant commissioning.
In July 2010, the new CIL tank agitators were installed at the CIL circuit of the gold
treatment plant in Selinsing. Commercial production was delayed slightly due to late
equipment delivery. At the end of September, the plant reached 90% of its designed
capacity.
Although the final capex of the plant is expected to increase from the planned $17 million
to around $20 million, it is significantly lower than similar plants capex in other
companies, which is usually at least $40 million. The low construction cost is attributable
to Monument’s excellent financial management expertise by actively sourcing qualified
equipment from local suppliers.
Page |9
Exhibit 7: The Treatment Plant at Selinsing
It is amazing that
the company can
build the treatment
plant at such a low
cost
In August 2010, the accumulated recovery rate in the gravity plant reached 65–70% while
the new CIL plant generated an accumulated recovery of 80–85%. Thus, the total
recovery has reached 93–96% in the Selinsing treatment plant.
The water for the project is originated from the nearby Sungai Kermoi River and feeds the
distribution system of the process plant. Processed water is obtained by recycling
process water and harvesting rainfall from temporary retention ponds. This water source
has proved reliable throughout the gravity plant operations and through the CIL
commissioning trials during fiscal Q2/10.
Exploration
Exploration at Selinsing has been ongoing since 1995, when initial rock chip soil and
channel sampling was undertaken. This work was followed by three phases of drilling over
the Selinsing resource and two phases of drilling over the tailings resource. Please see the
drill-hole location plan in Exhibit 8.
P a g e | 10
Exhibit 8: Selinsing Drill Hole Location Plan
* Colour codes: Air Core (AC) traces in blue; reverse circulation (RC) traces are in green; diamond drilling (DD) traces in red;
lease boundaries are white lines.
In June 2006, a program of targeted reverse circulation (RC) drilling took place to confirm
the tenor of the historical RC data. Nine holes were drilled and the significant results are
shown in Exhibit 9.
Exhibit 9: Drill Assay Summary Results
P a g e | 11
On September 22, 2010, Monument announced a $0.6 million budget for the Selinsing
property’s future exploration program. The exploration program includes 22 drill holes
comprising 1,000 metres of RC drilling and 3,000 metres of diamond drilling. The drill
program is aimed at increasing reserves by converting the inferred resources below the
present Selinsing open-pit outline, and is expected to be completed by March 2011.
Production
The first diamond
drilling in Selinsing’s
history is expected
to generate more
positive surprises
Fiscal 2010 started with the commencement of the open-pit mining in July 2009, followed
by the first gold pour from the gravity plant in October 2009.
Mining and gravity plant operating results are provided in Exhibit 10.
Exhibit 10: Mining and Gravity Plant Operating Results in Fiscal 2010
The CIL plant construction began in fiscal Q1/10 and the majority of the installation was
completed by the second quarter except for the CIL agitators, which were delivered five
months late and were found to be defective. The replacements were ordered during the
third quarter of fiscal 2010. Commissioning of the CIL plant was completed in August
2010. The company officially announced its commercial production on September 20th
2010.
The existing designed production capacity is 400,000 tonnes per year with annual gold
production at around 40,000 troy ounces. According to management, the expected
average cash cost of gold produced is as low as $346/oz due to the lower labour costs and
contractor rates in Malaysia, both of which are only 20% of those in Canada.
Monument is also reviewing the treatment plant’s expansion plan. The company is
expected to expand the plant’s capacity to 800,000 tonnes per year and it will take
another 12-18 months for the construction after the full commercial production is
announced for the existing plant. The expected capex for the expansion is around $4–$6
million. With the expected expansion plan, Monument’s annual gold production could
reach 75,000–100,000 troy ounces in three years.
P a g e | 12
Valuation – Selinsing
We approach our valuation of the Selinsing project utilizing a NAV approach, similar to
other companies in our universe. We have employed a 5% discount rate in our valuation,
which is consistent with the industry valuation standard for operating gold mines.
According to management, the life of mine (LOM) at Selinsing is expected to extend to
seven years from the originally designed 4.5 years thanks to higher gold prices. The
projected gold price used in the company’s original preliminary assessment report was
$750/oz, which is significantly lower than current spot gold price and our expected longterm gold price ($900/oz). Thus, more gold resources will be economic and mineable at
updated projections. There will be residual material added to the mine plan without any
consideration of drilling since the last study.
Our assumptions of mining costs and processing costs are based on Snowden’s technical
report1. We expect the total recovery rate will be just 88% during the first year of
commercial production and will remain at 96% afterward. Since the company just
acquired Famehub, we expect Monument will double its capacity at the treatment plant
in two years in order to be compatible with its future incremental resources. To be
conservative, we project an expansion capex of $8 million, higher than the company’s
original plan of $4-6 million.
In our model, we assume that only two-thirds of historic resources at Selinsing will be
mineable and the expected average LOM total cash cost of gold production will be $404/
troy ounce, higher than the company’s projection of $346/oz.
Exhibit 11: Cash Costs Comparison of Penjom vs. Selinsing
The actual operating
cost at Selinsing
could be lower than
expectations due to
the company’s
strong management
Cash costs per ounce
Mining cost ($)
Strip ratio
Processing cost ($)
Recovery rate
Ore head grade (g/t Au)
Royalties and overheads ($)
Total cash cost ($)
Penjom Mine
12 months ended
December 31, 2009
$416
17.74
$181
83%
3.24
$108
$705
Selinsing Mine
Life of Mine Forecasting
$104
3.25
$198
96%
2.48
$102
$404
Source: Monument Mining Limited, Avocet Mining PLC and Byron Capital Markets
1
Moncoa Corporation: Preliminary Assessment Selinsing Gold Project, Malaysia NI43-101 Technical Report (Nov. 2007)
P a g e | 13
Exhibit 12: NPV Model of Selinsing Project (Seven Years LOM)
Selinsing (000's)
2011E
2012E
2013E
2014E
30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14
$1,200
$1,150
$1,050
$900
$1.03
$1.04
$1.11
$1.09
Assumptions
Gold Price - US$
USD - CAD x Rt. - BB FW Curve
Breakdown By Source
Milled Tons
Throughput (TPD)
Production Days
Total mined (000's)
Leached Tones
Throughput (TPD)
Production Days
Ore Head Grade Au (g/t)
Total Recovery Rate
Gold Ounces Produced (000's)
Revenue
Mining Cost
Milling Operations
Leaching Operations
General & Admin Costs
Capital Expenditure US$ (000)
Royalty
Interest Payment
Exploration Expense
Depreciation
Taxes Payable
$1.81
$9.69
$5.30
5%
2015E
2016E
2017E
30-Jun-15 30-Jun-16 30-Jun-17
$900
$900
$900
$1.10
$1.10
$1.15
1,200
330
396
1,200
340
408
2,400
330
792
2,400
350
840
2,400
350
840
2,400
350
840
2,400
350
840
1,200
250
2.8
88%
1,200
340
3.0
96%
2,400
330
3.0
96%
2,400
350
3.0
96%
2,400
350
2.7
96%
2,400
350
1.7
96%
2,400
350
1.6
96%
29
$34,745
$3,092
$3,837
$1,590
$2,500
$3,300
$1,737
-$100
$1,000
$1,858
38
$43,450
$3,204
$3,954
$2,162
$2,500
$6,300
$2,173
-$200
$1,000
$2,431
73
$77,010
$6,219
$7,674
$4,198
$3,000
$1,600
$3,850
-$500
$1,000
$5,182
78
$70,009
$6,595
$8,140
$4,452
$3,000
$600
$3,500
-$700
$1,000
$5,332
70
$63,008
$6,595
$8,140
$4,452
$3,000
$600
$3,150
-$900
$0
$5,532
44
$39,672
$6,595
$8,140
$4,452
$3,000
$600
$1,984
-$1,000
$0
$5,832
$3,734
41
$37,338
$6,595
$8,140
$4,452
$3,000
$600
$1,867
-$1,100
$0
$6,432
$2,783
$22,358
$49,969 $43,421
$23,252
$55,465 $47,329
Shares Outstanding (MM):
$37,971
$41,768
Basic
Fully diluted
$12,167
$13,384
170
319
$11,001
$12,651
35%
Operating Cash Flow (OCF)
OCF (C$ 000')
Discount Rate
NPV (C$ 000')
NPV / Share (C$ Fully diluted)
$17,789
$18,322
5%
$185,925.36
$0.58
Strip ratio:
3.25
Source: Monument Mining Limited, Byron Capital Markets
Although our projected cash cost for Selinsing may be quite conservative, it is comparable
with the disclosed cash cost at the Penjom mine, which is located about 45 kilometres
from Selinsing and managed by Avocet Mining PLC. From Exhibit 11, we can see the major
cost advantage of the Selinsing mine versus the Penjom mine is the expected lower strip
ratio and higher recovery rates.
The company is expected to mine its high-grade resource in the first five years thanks to
the strong gold price and its five-year tax-free holiday.
Based on our NPV forecast model, the Selinsing Property is valued at $186 million or
$0.58 per share based on the company’s 319 million fully diluted shares outstanding.
Outlook
Monument is expected to expand the processing capacity of the Selinsing treatment plant
from 400,000 tonnes per year to 800,000 tonnes per year in the next two years. Since the
Selinsing property is adjacent to the company’s other exploration lands, the life of the
Selinsing treatment plant can be significantly lengthened if more economic resources are
delineated on Selinsing’s surrounding land.
P a g e | 14
Exhibit 13: Space Reserved for Expansion
Damar Buffalo Reef Project
History
Modern exploration started in the Buffalo Reef area in early 1993 by Damar Consolidated
Exploration Sdn. Bh.d. (“Damar”), a company incorporated under the laws of Malaysia,
which worked the property until 1996. In 1997, Avocet Mining PLC (“Avocet”), located in
London, U.K., began exploration in the area and continued until 2006. To the end of 2003,
Avocet had spent approximately US$900,000 on exploration.
In June 2007, Monument acquired 100% of the shares of Damar from Avocet, the parent
company of Damar, thereby acquiring the Buffalo Reef property. A total of $1,750,000 in
cash, 15,000,000 shares at $0.50 per share, and 7,500,000 share purchase warrants were
paid as consideration to acquire the shares and an Avocet promissory note payable of
$1,722,868 (RM5,573,824).
Property Description
The Buffalo Reef prospect is located in the Mukim of Hulu Jelai, District of Kuala Lipis, as
part of the northwest Pahang State of Peninsular Malaysia. The prospect is located some
60 kilometres north of the town of Raub (which is the major service, retail, and
administrative centre of the Raub District), 30 kilometres west of another regional centre
named Kuala Lipis, and approximately 2.5 kilometres southwest of Kuala Medang village
(a small village located on the southern bank of Sungai Jelai). The Buffalo Reef property is
contiguous and continuous with the Selinsing gold project for approximately 4.2
kilometres along the regional gold trend.
P a g e | 15
Access to within a few kilometres of the property is excellent by paved road, about 1 hour
from either the Raub or Penjom gold mines. A 33 kV national grid power line supplying
hydro generated very economical power runs past the property along the paved road.
The Sungai Merbau River and its tributaries drain the majority of the prospect, with a
small area in the south drained by upstream tributaries of Sungai Kermoi. The Sugai
Kermoi River contains sufficient water for future exploration or mining activities.
Exhibit 14: Damar Buffalo Reef Land Position
The Damar–Buffalo Reef tenements have been granted by the Malaysian government and
consist of four contiguous tenements, approximately 2,050 acres in Pahang State,
Malaysia.
The historic resource
at Buffalo Reef is
JORC-compliant, an
updated NI 43-101
compliant resource
report is expected by
the end of 2010
The Malaysian government maintains a 5% net smelter royalty (NSR) in all tenements
within the country. This interest does not occur until the mining stage. In addition, the
state-owned mining corporation, Pahang State Development Corporation (PKNP), is
granted a further 2% net smelter royalty on Buffalo Reef tenements only.
Exhibit 15: Historical Resources for Damar Buffalo Reef Property (2006)
P a g e | 16
Mineralization
The Buffalo Reef prospect lies on the eastern flank of the Raub-Bentong Suture, adjacent
to the Selinsing mine, in the same structural corridor within a Permian sequence of
phyllitic sandstone and siltstone, and to the west of the granitic intrusions. The Raub and
Terseng deposits lie along the same Raub-Bentong suture 50 kilometres and 25
kilometres, respectively, south of the Buffalo Reef prospect.
The dominant mineralized structure on the Buffalo Reef project area is a north-south
trending shear zone that is approximately 200 metres wide. This strong shear zone is
parallel to the regional structural fabric and defines the limit of mineralized quartz veining
and associated wallrock alteration. Gold mineralization at Buffalo Reef is associated with
quartz veins, which are hosted by sediments, primarily phyllite and schistose sandstone.
Exhibit 16: Drilling Samples from Buffalo Reef
The deposit type for this area is the mesothermal lode gold deposit model seen
worldwide, such as the Bendigo-Ballarat district in Australia, the Mother Lode district in
California and the Meguma district in Canada. These deposits are often characterized by
considerable vertical extent and high-grade ore shoots. Another deposit that contains
similarities would be the world-class Ashanti Goldfields Mining Ltd.–Obuasi mine in
Ghana, which is a vein gold deposit that has been operating for several hundred years.
Ashanti now produces nearly one million ounces of gold annually and has produced in
excess of 23 million ounces of gold since underground mining began in 1897.
Exploration
During fiscal 2008 and through fiscal Q1/09, Monument completed two drilling programs
for 11,871 metres of RC drilling with 1,400 metres of diamond drilling pending at the
south, central and northern zones of Buffalo Reef. These adjacent mineral exploration
programs, if successful, are expected to result in an increase in economic benefit for
the planned mine development at Selinsing by adding potential resources within
economic haulage distance of the Selinsing Gold Project.
On September 22, 2010, Monument announced a $0.8 million budget for the Buffalo Reef
property exploration program. The exploration program includes 33 drill holes
comprising 2,500 metres of RC drilling and 3,200 metres of diamond drilling. The drill
program is an extension of the previous 11,871 metres of shallow RC drilling programs
P a g e | 17
completed in 2008. It is aimed to convert the inferred resources into measured and
indicated, and to update the JORC Code compliant gold resource to NI 43-101 standards.
Metallurgical and recovery test work will also be performed on the Buffalo Reef ore as
part of the program. The company plans to study all of the results to date and, in
conjunction with the proposed diamond drilling program designed by Snowden, test the
potential extension of these results at depth. The diamond drilling program was originally
scheduled to begin in fiscal Q2/09 but was put on hold temporarily as a result of default
and failure by the lender to proceed with the $10 million credit facility during the 2008
financial crisis.
Outlook
The Damar Buffalo Reef property lies adjacent to the Selinsing mine, also owned by
Monument. Therefore, any economic mineralization will be treated at the Selinsing mill,
so potential infrastructure costs will be greatly reduced.
Currently, Snowden is engaged in advising and reviewing Damar’s exploration programs,
as well as undertaking all of the QA/QC work on the programs. An updated NI 43-101
report is expected by the end of 2010.
Famehub Exploration Land
In September 2010, through its wholly-owned subsidiary Damar, Monument acquired the
Famehub property by purchasing 100% of the shares of Famehub Venture Sdn Bhd.
Famehub has rights to approximately 32,000 acres of prospective exploration land to the
north of Buffalo Reef along trend and east of the Selinsing Gold Mine. Famehub also owns
a package of technical information and exploration database in respect to the subject
property. The full purchase price for the Famehub acquisition was $1.5 million in cash and
14 million common shares of Monument. The company has started preparation to
implement its exploration programs, targeting the consolidation of its Selinsing and
Buffalo Reef properties, together with the Famehub property around the newly
constructed producing Selinsing Gold Mine in order to extend the LOM with increased
resources nearby. Snowden has completed an independent technical report on the
Famehub property.
On September 22, 2010, Monument announced a $1.6 million budget for the Famehub
exploration program. The initial 12-month exploration program includes trenching and
61 drill holes comprising 7,440 metres of RC drilling and 1,500 metres of diamond drilling.
Data obtained from the acquisition allows the company to quickly focus on prospective
drill targets and assess the potential of the newly acquired ground through targeted
exploration.
The 32,000 acres of exploration land adjacent to Selinsing and Buffalo Reef will provide
significant upside potential to Monument’s shareholders. The company is moving closer
to its next resource inventory target (> 1 million ounces of gold) by further exploration.
P a g e | 18
Exhibit 17: Land Acquisition Package of Famehub
Company Valuation
Since Monument has no debt, our corporate adjustments only include the estimated cash
balance, convertible notes, existing stock options and warrants. Those adjustments
generate a cash value of $76.63 million or $0.24 per share. Adding our $185.9 million, or
$0.58 per share, estimated NPV of the Selinsing project results in a company-wide NAV of
$262.55 million or $0.82 per share. At the current price of $0.49 per share, this yields a
price/NAV multiple of 0.6x, a level normally reserved for exploration and development
companies in the gold sector.
Exhibit 18: NAV Breakdown Table
Item
Selinsing Project's NPV
Corporate Adjustments
Cash on hand *
Convertible Notes **
Convertible Note Shares **
Option Proceeds
Warrant Proceeds
C$ million C$ NAV/Share
185.93
0.58
NAV
15
-8
8
10.00
51.62
76.63
262.55
0.05
-0.03
0.03
0.03
0.16
0.24
0.82
* Estimated
** We assume all convertible notes will be converted into shares.
P a g e | 19
Exhibit 19: Financial Summary of Monument Mining
(US$ 000's)
Fiscal Year End
Revenue
Operating Costs
Mining Costs
Milling Costs
Leaching Costs
2011E
2012E
2013E
2014E
2015E
2016E
2017E
30-Jun-11
30-Jun-12
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
Operating Margin
General & Admin Costs
Royalty
EBITDA
Interest Payment
Exploration Expense
Depreciation
Taxable Income
Taxes Payable
Net Income
EPS ($ Fully diluted)
EPS (C$ Fully diluted)
Operating Cash Flow (OCF)
OCF/Share ($ FD)
OCF/Share (C$ FD)
Price/OCF
Gold Ounces Produced (000's)
34,745
43,450
77,010
70,009
63,008
39,672
37,338
3,092
3,837
1,590
8,519
26,226
2,500
1,737
21,989
-100
1,000
1,858
19,230
0
19,230
0.06
0.06
17,789
0.06
0.06
8.5
29
3,204
3,954
2,162
9,319
34,131
2,500
2,173
29,458
-200
1,000
2,431
26,227
0
26,227
0.08
0.09
22,358
0.07
0.07
6.7
38
6,219
7,674
4,198
18,091
58,919
3,000
3,850
52,069
-500
1,000
5,182
46,387
0
46,387
0.15
0.16
49,969
0.16
0.17
2.8
73
6,595
8,140
4,452
19,187
50,822
3,000
3,500
44,321
-700
1,000
5,332
38,689
0
38,689
0.12
0.13
43,421
0.14
0.15
3.3
78
6,595
8,140
4,452
19,187
43,821
3,000
3,150
37,671
-900
0
5,532
33,039
0
33,039
0.10
0.11
37,971
0.12
0.13
3.7
70
6,595
8,140
4,452
19,187
20,485
3,000
1,984
15,501
-1,000
0
5,832
10,669
3,734
6,935
0.02
0.02
12,167
0.04
0.04
11.7
44
6,595
8,140
4,452
19,187
18,151
3,000
1,867
13,284
-1,100
0
6,432
7,952
2,783
5,169
0.02
0.02
11,001
0.03
0.04
12.4
41
Conclusion
Monument Mining presents investors with an excellent opportunity to gain exposure to
an undervalued and growing gold producer. With its recently announced official
commercial production, the company is expected to generate significant value for its
shareholders as a low-cost gold producer.
Based on our model, Monument’s current stock price is trading at 0.6x NAV. The average
price/NAV ratio of junior gold mining companies is between 1x and 1.5x NAV. The
company’s stock price is significantly undervalued compared to its peers. Our valuation
model only includes NI 43-101 compliant resources in Selinsing, and we believe the newly
acquired Famehub land and existing resources in Damar Buffalo Reef will bring investors
more positive surprises and significant long-term upside potential.
We initiate coverage on Monument Mining with a BUY recommendation and an $0.82
price target based on a 1x NAV multiple.
P a g e | 20
APPENDIX I: MANAGEMENT AND DIRECTORS
Robert F. Baldock, CA(M), FCPA, FCMC – Executive Officer, President & CEO, Director
Mr. Baldock is an experienced mining executive as well as being a qualified and
experienced accountant with over 30 years of hands on management of public and
private corporations across a wide range of industries. Mr. Baldock is the former cofounder and Managing Director and subsequently Executive Chairman of Golconda
Minerals N.L. Group of Mining Companies listed on the ASX, NASDAQ and Stuttgart Stock
Exchanges. He was as well President of a controlled subsidiary, Nevada Goldfields
Corporation, which was listed on the TSX, Toronto, NASDAQ, USA and Stuttgart Stock
Exchanges. Mr. Baldock’s role with the Golconda Group also included the role of
Managing Director of Duketon Exploration Limited, listed on the ASX. The Market
Capitalization of the Golconda Group and its subsidiaries was over $200,000,000 at the
peak of operations. During Mr. Baldock’s period of tenure he had the overall
responsibility for raising $30,000,000 of capital and using the raised capital and cash flow
from operations to oversee the design, construction, commissioning and operation of six
mineral processing plants.
George Brazier, BA, LLB – Chairman, Director
Mr. Brazier is a member of the Law Society of British Columbia and the Canadian Bar
Association. He has practiced law for 42 years, the last 40 years at DuMoulin Black LLP, a
small boutique law firm specializing in corporate and securities law.
Cathy Zhai, B.Sc., CGA – Executive Officer, Corporate Secretary, CFO & Vice President
Ms. Zhai has been the Chief Financial Officer at Monument Mining Limited (Formerly
“Moncoa Corporation”) since 2001. Ms. Zhai has over thirteen (13) years of extensive
experience at senior positions in corporate finance, financial reporting, overseas capital
registration and cash management, and business strategic planning. In her career, she has
worked as CFO, Director of Finance and other senior roles with several public and private
companies across the mining, high tech and biotech industries. Ms. Zhai is a designated
Certified General Accountant and holds a Bachelor of Science degree in Mathematics and
Diploma in Financial Management Accounting and Multicultural Comparison. Ms. Zhai
reports to Chief Executive Officer.
Zaidi Harun, B.Sc. – Executive Officer, Vice President Exploration, Director
Mr. Harun is an experienced Exploration Geologist with 15 years’ experience in
international mining industry field work as well as extensive mine geological exploration
experience. Mr. Harun has spent the last 10 years working on the Selinsing Project site for
Selinsing Mining Sdn Bhd. developing the present reserves and resource. He has been
involved from the onset in Monument’s preliminary mine planning and initial
development for the Selinsing Gold Mine project.
Scott Ladd, P.Eng. – Vice President Business Development
Mr. Ladd holds a B. Eng. in mining from Laurentian University, Sudbury, Ontario and has a
wide array of experience in over 15 years in the mining industry. Mr. Ladd previously
served as the Director of Operations Performance Management with Kinross Gold and
P a g e | 21
worked in various senior operations and project management roles with Vale Inco,
Grande Cache Coal and Hudson Bay Mining and Smelting.
Kevin J. Wright, ACSM – General Manager, Mine Manager
Mr. Wright is a mining and Mineral Processing Engineer and has over 33 years of
international experience building mineral treatment facilities, developing both
underground and open caste mines and operating such projects. His international
experience has included management of mines and plant design engineering, reliability
maintenance planning, permitting, quality control and the business of running safe
profitable mines and mineral processing plants in Central and South America, the
Caribbean, Asia, Russia and the former Soviet Union as well as Scandinavia, Eastern
Europe and North America.
Mike Kitney, M.Sc., (Met.) AusIMM – Project Manager
Mr. Kitney has over 25 years of industry experience with the last 10 years in project
design, project construction management and operations management with Minproc
Engineering, Western Mining, Avocet and others.
Adam Bradley – Director
Mr. Bradley is a Chemical Engineer with 14 years’ experience in mineral processing
operations with Alcoa at the Pinjarra and Wagerup refineries including two years with the
Normandy Gold Group in Kalgoorlie. Mr. Bradley is presently the Capital Program
Manager at the Alcoa Wagerup Alumina Refinery in Western Australia.
Graham Dickson – Director
Mr. Dickson is a mining executive with over 25 years of extensive experience in the gold
mining industry and has built numerous gold treatment plants in remote areas of the
world. In the past, he served in various capacities with BYG Natural Resources Ltd., which
had a gold mine in the Yukon Territory. He also acted as General Manager of a turnkey
construction company for gold milling facilities in remote locations, including the Snip Mill
for Cominco Ltd., Golden Patricia Mill for Bond Gold, Seebee Mill for Claude Resources
and for surface facilities at the Julietta mine for Bema Gold. Mr. Dickson is currently
serving as Chief Operation Officer of Yukon-Nevada Gold Corp., which holds a diverse
portfolio of gold, silver, zinc and copper properties in the Yukon Territory and British
Columbia, Canada as well as in the states of Arizona and Nevada in the U.S.
Richard Cushing, B.A. (Econ.), CSC – Investor Relations
Mr. Cushing has over 14 years’ experience working in the public markets. During his
career, he has held the position of Investor Relations Manager for two technology
companies. Mr. Cushing holds an Advanced Bachelor of Arts degree in Economics from
the University of Saskatchewan.
P a g e | 22
IMPORTANT DISCLOSURES
Analyst's Certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the
subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly,
related to the specific recommendations or views expressed by the responsible analyst(s) in this report. The particulars contained herein
were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete.
Byron Capital Markets (“BCM”) is a division of Byron Securities Limited which is a Member of IIROC and CIPF. BCM compensates its
research analysts from a variety of sources. The research department is a cost centre and is funded by the business activities of BCM
including institutional equity sales and trading, retail sales and corporate and investment banking. Since the revenues from these
businesses vary the funds for research compensation vary. No one business line has greater influence than any other for research analyst
compensation.
Dissemination of Research
BCM endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients. BCM equity research is
distributed electronically via email and is posted on our proprietary websites to ensure eligible clients receive coverage initiations and
ratings changes, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax or
regular mail. Clients may also receive our research via a third party.
Company Specific Disclosures:
1. The research analyst(s) and/or associate(s) who prepared this research report have viewed the material operations of Monument Mining Limited.
2. BCM has been paid or reimbursed by the issuer for the analyst(s) travel expenses to view the material operations of Monument Mining Limited.
3. BCM has received compensation for investment banking and advisory services from Monument Mining Limited during the preceding 12 months.
Investment Rating Criteria
STRONG BUY
The security represents extremely compelling value and is expected to appreciate significantly from the
current price over the next 12-18 month time horizon.
BUY
The security represents attractive value and is expected to appreciate significantly from the current
price over the next 12-18 month time horizon.
SPECULATIVE BUY
The security is considered a BUY but in the analyst’s opinion possesses certain operational and/or
financial risks that may be higher than average.
HOLD
The security represents fair value and no material appreciation is expected over the next 12-18 month
time horizon.
SELL
The security represents poor value and is expected to depreciate over the next 12-18 month time
horizon.
Other Disclosures
This report has been approved by BCM, which takes responsibility for this report and its dissemination in Canada. This report is for the
sole use of BCM’s Canadian clients. Canadian clients wishing to effect transactions in any security discussed should do so through a
qualified salesperson of BCM.
Informational Reports
From time to time BCM will issue reports that are for information purposes only and will not include investment ratings. These reports
will be clearly labelled accordingly.
P a g e | 23
Company Directory
Executive
Campbell Becher, President
647-426-1657
[email protected]
Investment Banking
Cliff Rich, CFA, Managing Director – Vancouver
604-616-1211
[email protected]
Sales & Trading
Main Trading Line 647-426-1670
Cyrus Osena, Head of Institutional Sales
647-426-1675
[email protected]
Robert Orviss, CFA, Managing Director – Toronto
647-426-1668
[email protected]
David Kemp, Head of Institutional Trading
647-426-1666
[email protected]
Byron Berry, Desk Analyst
416-867-1623
[email protected]
Graham Farrell, Institutional Sales & Trading
647-426-1667
[email protected]
Jonathan Samahin, CFA, Institutional Sales & Trading
647-426-1670
[email protected]
Kariv Oretsky, Institutional Sales
647-426-1658
[email protected]
Nick Perkell, Institutional Trading
647-426-1671
[email protected]
Nick Stajduhar, Institutional Sales
647-426-1664
[email protected]
Tom Chudnovsky, Institutional Sales
647-426-1665
[email protected]
Sandy Lam, Associate
416-867-2375
[email protected]
Operations
Derrick Chiu, Head of Syndication
647-426-1662
[email protected]
Dale Sampson, Chief Compliance Officer
416-867-1569
[email protected]
Marco Beretta, Associate
647-426-0289
[email protected]
Alex Watson, Associate
604-616-0190
[email protected]
John Rak, Associate
647-426-1663
[email protected]
Elisa Chio, Analyst
647-426-0288
[email protected]
Mary Stuart, Analyst
604-616-5311
[email protected]
Russell Mills, Analyst
647-426-0290
[email protected]
Research
Guy Gordon, CFA, Head of Research – Oil & Gas Analyst
647-426-1672
[email protected]
Al P. Nagaraj, Special Situations Analyst
647-426-0291
[email protected]
Drew Clark, Mining Analyst
647-426-1673
[email protected]
Jeff Wu, CFA, Mining Analyst
604-697-2455
[email protected]
Jon Hykawy, PhD, Clean Technologies & Materials Analyst
647-426-1656
[email protected]
Gabriela Casasnovas, Associate
647-426-0287
[email protected]
Jonathan Lee, Associate
647-426-1674
[email protected]
Robyn Lyle
647-426-1660
[email protected]
Sandra Day– Vancouver
604-697-2540
[email protected]
P a g e | 24

MMY-TSXV Initiation Report (10-22-2010)

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