AMI 1.96% 52.0¢ aurelia metals limited

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    KKR

    Aurelia Metals may be headed for S&P/ASX 200, dividends amid surging gold price
    4 March 2019
    Author: Anthony Barich
    Source: SNL Metals & Mining Daily: West Edition

    A continuing strong gold outlook, production and growth options mean Aurelia Metals Ltd. is headed for the S&P/ASX 200 and is not far from dividends after hitting an all-time high price of 92 Australian cents per share this month, broker Hartleys said.

    Hartleys lifted its 12-month price target on Aurelia from 90 cents to A$1.05, having assumed a weaker Australian dollar on the U.S. exchange rate, which improved the broker's Australian-dollar gold price forecasts to be in line with consensus.

    Yet Commonwealth Bank of Australia Mineral and Energy Commodities Associate Director Vivek Dhar said in an interview that the current base case is the Australian-dollar gold price "tracking sideways."

    "The upside risk is if concerns over global growth intensify and we see a flight to safety, which would then lead to the U.S. dollar strengthening and the Australian dollar weakening. However, you'd also get safe haven appeal for gold too," Dhar said.

    Aurelia strengthening

    Hartleys announced its higher price target on Aurelia in a Feb. 27 note after Aurelia posted a 131% higher EBITDA of A$72.3 million for the first half of its fiscal 2019 over the prior corresponding period, a 44% better net profit after tax of A$26.4 million and 140% higher sales revenue of A$165.5 million.

    The miner produced 71,300 ounces of gold in the half at an all-in sustaining cost of A$794 per ounce at a healthy all-in sustaining cost margin of A$884/oz on gold sold, and Hartleys forecasts higher output in the fiscal second half of about 78,000 ounces at an all-in sustaining cost of about A$950/oz.

    Aurelia is now in a tax payable position, having used all of its tax losses, and reported a tax expense of about A$17 million for the half.

    Its tax payments to the Australian Taxation Office are expected to be more than A$18 million for fiscal 2019, which Hartleys said could imply a franking credit account of more than A$7.5 million, which should continue to build.
    Though Aurelia did not declare a dividend for the half, nor was it expected, it said its board will "assess capital management priorities once contract mining at Peak [gold mine in New South Wales] is bedded down, life of mine plans are updated and growth capital and tax positions are firmed."

    Hartleys now sees potential for Aurelia to start entertaining paying dividends in the "near future" and believes that a dividend policy linked to after-tax earnings would be a "sensible approach" that has been adopted by a number of its peers.

    Hartleys resources analyst Mike Millikan said in an interview that Evolution Mining Ltd.'s dividends are linked to after-tax earnings, while Independence Group NL is targeting to return between 15% and 25% of free cash flow to shareholders.

    Millikan said Aurelia could look forward to index inclusions including the S&P/ASX 200, which puts the miner into another category of investors, and the base metals in its production also make it a low-cost gold producer.

    Though Aurelia hit an all-time high share price of 92 cents Feb. 25 since changing its name from YTC Resources in June 2014, it is still trading at a discount to Hartleys' valuation of 95 cents.

    Millikan said this was in contrast to major Australian gold producers such as Northern Star Resources Ltd., Saracen Mineral Holdings Ltd. and Regis Resources Ltd., which are trading at a premium to many analysts' valuations of them.

    Impressive results

    The results of new underground drilling below Aurelia's existing Peak Deeps resource, part of a 19-hole resource extension and infill program unveiled Feb. 18, was also encouraging and exhibited similar "pod style" mineralization to other ore bodies at Peak and Hera to the south.

    Those results included 16 meters at 71.6 g/t gold and 8.5% lead plus zinc, 23 meters at 27.1 g/t gold and 33.2% lead plus zinc, 14 meters at 42.9 g/t gold and 13.4% lead plus zinc, and 11 meters at 5.3 g/t gold and 25.4% lead plus zinc.
    With all intercepts occurring outside of the current life-of-mine plan for Peak, Aurelia believes that the mineralization style and tenor is comparable to the high-grade Chronos deposit's ores now being mined to the south of the Peak mine.

    The day after Hartleys put out its note, Aurelia revealed the results of underground drilling at Hera showing further high-grade base metal and gold intercepts in the upper North Pod and confirmed the up-dip potential.
    The Peak plant is being enhanced to include a lead-zinc circuit, due to be operational in fiscal 2020, which Millikan said will unlock "a whole raft of ore."
 
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