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Market
Equities Research - Market Bulletin
October 26, 2016 4:31 PM ET
Gold Producer Metanor Improves Cash Flow, Funds Exploration Programs
Expected to Yield Ounces on Several Fronts
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Company plans to publish a
resource and reserve update for Bachelor Mine before December
31, 2016.
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Company will publish an
independent PEA (all-in costs of US$891/oz) on Barry open pit
before November 4, 2016, and continue to increase the value
following the recommendations from the PEA -- targeting
reopening Mid-2017.
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Company is highly prospective
for major high-grade discovery proximal Osisko's Windfall
Project.
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The Company's total
infrastructure is valued (estimated replacement value) at
between CDN$150M to $200M. The Company's primary asset, the
100%-owned Bachelor Mill, has a replacement value of several
times the Company's current market cap and is increasingly being
viewed as a coveted strategic asset being the only mill within
200km in a gold-rich district. The Company has met its cash flow
guarantee to Sandstorm and is now free to mill ore sourced from
outside Bachelor without penalty.
Simon Levinson, s.levinson@marketequitiesresearch.com
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Metanor Resources Inc.
Resources: Gold, Silver
MTO.V, OTC: MEAOF, M3R.F,
http://www.metanor.ca
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Prices |
Share:
C$0.075 |
MCap: ~C$32.7M |
On:
10/25/2016 |
History |
52-Week:
C$0.025–C$0.125 |
20-Day
Average: $0.077 |
100-Day
Average: $0.085 |
|
Average Vol:
472,523 |
Weighted Alpha: +15.09 |
|
Shares |
SO: 436.19M |
FD: 522.20M |
As of: 10/2016 |
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Metanor
Resources Inc. (TSX-V: MTO) (US Listing: MEAOF) (Frankfurt: M3R)
has announced
the release of its full-year financial results,
revealing a gold producer that is holding its own, aided
by increases in the price of gold, successfully
executing on cost-cutting measures, and able to generate
a positive free cash flow. Full copy of the financials release from
source may be viewed
here.
Mr. Thibaut Lepouttre, Managing
Director at Belgium-based mining and commodity research
BVBA firm Caesar published a report this week on his
analysis of Metanor's latest financials pointing out how
astute precious metal mining investors generally do not
focus on accounting profits on the income statements;
As mining and oil and
gas businesses usually have a high up-front
capex and low sustaining capex (relatively
when compared with the initial capex), a lot
of the mining companies report negative
earnings whilst the cash flows are positive.
Perhaps a remarkable case is Barrick Gold,
which reported a net loss of $2.8B in the
financial year 2015, even though its free
cash flow was positive to the tune of $400M
on an adjusted basis.
Just for the record, Metanor’s bottom line
showed a small net loss of C$2.5M which
sounds very reasonable, but you should
realize this was predominantly caused by a
reversal of an impairment charge of C$10.4M
(see above). The entire reversal was based
on the Barry deposit as Metanor thinks that
project will now be profitable again at the
current gold prices. The PEA on the Barry
project indeed yielded positive results, but
the jury is still out until we have seen the
details in the technical report which will
be filed any day now.
Moving over to the cash flow statements now,
Metanor reported an operating cash flow of
C$500,000 and whilst that’s already a
substantial improvement compared to the
first half of its financial year, the second
semester wasn’t good enough to cover the
entire capex and exploration programs during
FY 2016. The next table breaks the
performance down to see how Metanor
performed in both semesters. We will use the
adjusted cash flows, excluding changes in
Metanor’s working capital position. We are
also including all exploration expenses in
the equation. Technically, we would only
have to include the sustaining exploration
expenses meant to keep the mine life stable,
but given the short ‘official’ mine life at
the Bachelor Lake mine and the need to bring
Barry back online, we will qualify all
exploration expenditures as sustaining.
As you can see, Metanor reported a positive
operating cash flow in the second half of
the year, but the capex also increased, due
to an increased exploration spending (C$1.9M
in H2, which will hopefully pay off if the
Barry project is being brought back into
production). It’s also a reason why we
prefer companies to be debt-free, as Metanor
paid in excess of C$1M on interest expenses.
On an annualized basis, Metanor would be
generating C$3.6M in operating cash flow
which would be sufficient to cover the
sustaining capex on the equipment (C$2.2M),
but the company’s exploration programs are
increasing the cash outflow. Unfortunately
the company has no other option, because it
needs to increase its confidence in the
Barry project by completing some more infill
drilling to validate the PEA expectations.
...full copy of Lepouttre's analysis from
source is may be viewed
here. |
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Barry Open-Pit Mine Reopening Targeted for Mid-2017
Our biggest take-away from the financials was
the impairment reversal on the Barry Mine (now that it
appears economical at current gold prices), signaling
Metanor's intention to make it the focus of future
production beginning mid-2017, with processing at the
Bachelor Mill. The mill will either juxtapose Bachelor and Barry
ore, or simply totally supplant
Bachelor ore all together with higher-margin Barry ore
(additionally saving dramatically by not having
underground development, labour, and streaming costs
from Bachelor in the process). Metanor originally mined
ore from Barry when it first took the refurbished
Bachelor Gold Mill online several years ago, while it
was still prepping to access the high-grade underground
ore at Bachelor mine, it poured a total of ~45,000 oz
gold from Barry sourced ore during that initial interim
period. Metanor is now eager to return to Barry; the
mill is proven and the recoveries are higher, loan and
streaming obligations that consumed cash flow are
satisfied, the crews are experienced, and the price of
gold is higher.
With open-pit production targeted to begin in
Summer-2017 and ramp-up expected to attain 37,573
ounces/annum for year two, Metanor will attain
significant positive cash flow at Barry with all-in
production cost projected at only $1,114/oz (US $891/oz)
-- this PEA estimate was made using a gold price of only
C$1,560/oz -- the financial analysis using higher gold
prices of C$1,710/oz would generate a NPV at $78.07
million with an IRR of 246% before taxes. Spot
gold is currently (as of October 25, 2016) near C$1,700,
and many believe substantially higher gold prices are in
the cards. Under the base PEA we are looking possibly
C$15M+ in positive cash flow per annum from Barry, under
current gold prices we are looking closer to C$23M+ per
annum in positive cash flow. Important to note is that
Metanor will pay no taxes for at least the first 2 - 3
years with its loss carry forward on the books, plus
there is no streaming agreement on the Barry project.
Details of the Barry open-pit PEA may be viewed in the
Company's
September 22, 2016 news release.
Currently at Barry the Company has a 8,000 meter drill
campaign underway. The objective is to increase the
mineral resources around the pits at Barry and to
increase their quality by converting mineral resources
from the inferred category to the indicated category.
Highly prospective for major discovery proximal
Osisko's Windfall Project: As part of the current
8,000 m drill program at Barry the Company will also
target for high-grade speculation outside the pit at the
Moss showing, located 7 km north-east of the Barry pit
and 4 km south-west of the Windfall deposit (belonging
to Osisko Mining Inc.). The geological context and the
structure controlling the Windfall deposit extend to
this showing. Drill results from 2014 revealed the
presence of gold anomalies near surface on a 3 km
stretch extending to the south-west. The upcoming drill
holes will target the extensions of the gold anomalies. |
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We have identified the
following additional research links for further DD on Metanor
Resources Inc.
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#
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*This release may contain
forward-looking statements regarding future events that involve risk and
uncertainties. Estimates of potential made by the mining analyst are non 43-101
and not from the Company. Readers are cautioned that these forward-looking
statements are only predictions and may differ materially from actual events or
results. Articles, excerpts, commentary and reviews herein are for information
purposes and are not solicitations to buy or sell any of the securities
mentioned.
Contact information:
Simon Levinson,
Editor in Chief
and Fredrick William
Market Equities Research Group
s.levinson@marketequitiesresearch.com
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