Fat Prophets - Aurelia Metals Ltd

Transcription

Fat Prophets - Aurelia Metals Ltd
YTC Resources Limited
14 Apr 10
YTC
AUD $0.27
The Hera Deposit looks better with each drill hole
Fat Prophets is constantly on the lookout for new opportunities and YTC Resources fits
perfectly given our positive view on both gold and copper. We have met with the company’s
CEO, Mr Rimas Kairaitis and we were impressed with the results that are being obtained
from the Hera Deposit and the exploration potential that the Cobar Trough has to offer. All
going to plan, the company expects to be producing metals by 3Q11.
The company is exploring the Cobar Trough to the southeast along strike from the well
known CSA copper mine and The Peak gold mine. The Cobar Gold Field has produced over
7 million gold equivalent ounces.
“At current prices, Hera would be a very low cost gold producer.”
The thesis to invest in YTC Resources is compelling. The geology is excellent and there is a
history of mining high grade and high value ores. There is good reason to believe that the
corridor between the Nymagee Copper Mine and the Hera deposit has the potential to host
millions of gold equivalent ounces.
Moreover the recent drilling results from Hera have been excellent. There are two large
geophysical anomalies that have not been drill tested and there is a good chance that the
company might make a major discovery.
In addition, it is the nature of ore lenses in this district to become copper rich with
increasing depth. The CSA and The Peak mines started out as shallow lead-zinc mines. As
mining progressed in combination with exploratory drilling, it was found that the
mineralisation was zoned vertically. Deeper level ore lenses became increasingly rich in
copper.
A map showing where the Hera deposit is located in the Cobar Trough is shown in
the following figure. This figure and the other figures in this review have been copied
from YTC documents.
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YTC seems to have flown below the radar of many investors but that is changing with the
CEO lifting the profile of the company. We note that the volume of shares being traded is
increasing and the company’s share price is starting to move higher.
“The Net Present Value is A$90 million, which is just over twice the current
market capitalisation.”
SHARE PRICE CHARTS AND COMMENTS:
This is our first coverage of YTC Resources Limited.
Turning to the technical’s, YTC Resources is currently forming a base formation since
January 2009 between support at 9 cents and resistance at 35 cents. Base building is a
bullish sign and can be regarded as a building of energy for an upward break. This will
become valid upon break of the September 1, 2009 high of 35 cents. Should this occur the
potential upside target from there would be the September 11, 2008 high of 54 cents as
denoted by the thick red line on the daily chart.
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Momentum remains favoured towards the downside as depicted by the bearish moving
average cross formed since February. On the flipside, volume is increasing along with a
strengthening relative strength index (RSI), suggests of an increase in investor interest.
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STATE OF PLAY
YTC Resources is a high quality emerging gold and base metal miner. The company
currently has 164.2 million ordinary shares on issue which gives the company scope to
raise a significant amount of capital and still leave shareholders highly leveraged to the
Hera mine and ongoing exploration.
The company has three substantial shareholders, all of which are Chinese. The Yunnan Tin
Group owns 15% of the company and Wonderful Investments and China Yunnan Tin Metals
(HK) own 9.75% and 5.95% respectively. These shareholders are strongly supportive of
the company and in addition to subscribing for new equity, might also be a source of
funding through the issue of convertible notes.
The latter is something that Malachite Resources has recently done and on very friendly
terms. In brief Malachite has secured $4M from the issue of convertible notes with a
coupon of 10% to Nanyang Mining Resources Investment Pty Ltd. At Malachite’s election,
the notes can be settled with cash or shares, or a mixture of both.
When it becomes time to raise capital after the DFS is finished, scheduled for July 2010, we
believe that the company’s share price will be significantly higher than the current price of
around $0.25.
The company will announce new resource statement for Hera, perhaps as early as the end
of this April. Also in the pipeline are new exploration drilling results from north and south of
Hera. Investors should expect a constant flow of positive news with several near term
catalysts for re-rating the company’s share price.
Turning to regional exploration, the company has a number of gravity targets to explore.
“YTC considers the use of the Gravity technique and deep exploration drilling has shown to
be hugely successful in the discovery of Cobar style deposits, and will be the main
exploration tools employed in the Hera exploration programme.”
The next two figures show the prospective corridor being explored and a detailed gravity
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map. The corridor has a total length of 25km. South of the Hera deposit is poorly explored.
By way of background, here is the brief history of Hera. Hera was discovered by Pasminco
in 2001. When Pasminco went into receivership, Hera was sold to Triako. Triako
commenced a drilling program in 2003 and delineated the top of a typical Cobar-style
system.
Triako produced a positive Pre Feasibility Study to develop Hera but did not get the chance
to because of a successful scrip bid from CBH Resources. CBH increased the size of the
resource and got approval for a box cut and decline.
YTC acquired the Hera deposit from CBH for A$11 million in cash plus a royalty. The
company also acquired 80% of the Nymagee JV for A$1 million.
The company says it will have around A$7 million in cash at the end of 2Q10. Following the
announcement of the DFS the company anticipates it will move quickly to begin
construction of a decline that is expected to cost around A$15 million.
The company is currently considering the way forward and is considering a number of
funding alternatives. Because Hera is not yet fully permitted for mining to begin,
investment banks are wary of funding the development of the decline. This is not expected
to be the case when Hera is fully permitted.
Both a rights issue and the issue of convertible notes are being considered and perhaps a
mixture of both. Hera looks like being a very good project and with additional resources
and good exploration results we see no reason why funding would not be available from
vanilla equity.
The gravity map shown below is reproduced from a recent YTC presentation. The key
points to note are the untested gravity highs, notably the very strong Zeus anomaly
immediately south of Hera. Zeus is currently being drilled and results will be known soon.
There is also a poorly tested gravity high to the northeast of the Nymagee Copper Mine.
The company certainly does not lack exploration potential and is sure to produce some
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excellent drilling results over coming months.
Turning specifically to the Hera deposit, drilling is underway to probe and extend the
high-grade Far West lens. Past results include hole TNY074 which intersected 7.8 metres
grading 15.2 g/t gold, 12.5% zinc, 7.5% lead and 42 g/t silver – this was an excellent
intercept by any measure.
The Far West lens is plunging to the north. Geologists are hopeful that drilling deeper to
the north will encounter additional high grade mineralisation that will become increasingly
copper rich, just like the other nearby deposits.
It is important to note that the Far West Lens is not included in resources for the Base Case
Study. However, given the pace of exploration a JORC resource will be incorporated into
the final mining study to be assessed in the DFS which is scheduled to be completed this
coming July.
The Hera ore lenses are shown in the next figure, which is looking in an easterly direction.
The Far West Lens is shown in orange and the direction of the plunge to the north is shown.
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Recent drilling has substantially extended the Hera Deposit along the northerly plunge. The
best results included hole HRD014 which intercepted three zones of mineralisation that
included 6.8 metres at 15.42 g/t gold, 2.86% lead, and 2.6% zinc from 475.5 metres. Hole
HRD020 also intercepted multiple zones including 8 metres grading 5.5 g/t gold, 18 g/t
silver, 0.47% copper, 2.3% lead and 1.4% zinc from 430.5 metres.
The extension to Hera Far West Lens mineralisation is shown in the next figure, which is a
long section, this time looking west.
Assays are awaited for a further six drill holes.
Preliminary financial modelling for developing Hera is summarised in the last figure. A key
assumption is that ore is treated at the Endeavor facility owned by CBH Resources.
Commodity price assumptions are modest using a gold price of US$800 per ounce and a
copper price below US$2.00 per pound. In a similar fashion, $0.58 per pound for zinc and
lead are low. Despite using modest commodity prices, the Internal Rate of Return is very
high at 94%.
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After by-product credits, Hera is expected to produce gold at a cash cost of around A$360
per ounce. At current prices, Hera would be a very low cost gold producer.
The Net Present Value is A$90 million, which is just over twice the current market
capitalisation.
The company has a very good story to tell and is significantly undervalued. All
going well, development of the Hera deposit will begin in 3Q10 and continue into
2011. The mine should be in production from mid-2011. We also expect the
company to add significant value to shareholders from the drill bit.
YTC Resources is recommended as a BUY for all Members at a target price of
around A$0.27.
Snapshot YTC
YTC Resources Limited
YTC Resources has its headquarters in New South Wales in the town of Orange. The company is focussing its
exploration and development activities on the Cobar Trough. This is a world class mineral province which is
richly endowed with high value gold and base metal deposits. YTC’s flagship asset is the Hera gold and base
metal deposits. To the northwest of Hera the company also owns the Nymagee Copper Mine. The Nymagee
Copper Mine was very high grade with 422,000 tonnes mined at an average grade of 5.8% copper. The
exploration potential along strike from these deposits is very high and the company has a good chance of
making a major discovery.
Market Capitalisation
A$43.51M
DISCLAIMER
Fat Prophets has made every effort to ensure the reliability of the views and recommendations expressed in the reports published
on its websites. Fat Prophets research is based upon information known to us or which was obtained from sources which we
believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect. This report is prepared
for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user
have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of
each recommendation for their own specific circumstances and realise that not all investments will be appropriate for all
subscribers. To the extent permitted by law, Fat Prophets and its employees, agents and authorised representatives exclude all
liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on,
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such liability, Fat Prophets hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the
cost of the said resupply. As at the date at the top of this page, Directors and/or associates of the Fat Prophets Group of
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Companies currently hold positions in ABB Grain (ABB), Aurora Minerals (ARM), Austal (ASB), Australian Wealth Management
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(BJT), Boart Longyear (BLY), Biota Holdings (BTA), Catalpa Resources (CAH), Catalpa Resource Options (CAHO), Coeur D'Alene
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Iron Ord (TFE), Telstra Corporation (TLS), Tox Free Solutions (TOX), View Resources (VRE), View Resources Options (VREO),
Walter Diversified (WDS), Woodside Petroleum (WPL), Merrill Lynch Gold Fund, Platinum Japan Fund, Gold Bullion. These may
change without notice and should not be taken as recommendations. The above disclaimer does not apply to investments held by
the Fat Prophets Australia Fund Limited ACN 111 772 359 (FPAFL).
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