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Latest Research Note - Hartleys 8 Feb 2015

  1. KKR

    707 Posts.
    Sent from Aurelia Metals via email.

    Hera commissioning nearing completion

    Aurelia Metals Limited is in the final stages of commissioning the Hera goldzinc-
    lead operation (AMI 100%), with the major milestone of commercial
    production expected to be announced this quarter (MarQ).

    Aurelia has recently underperformed in regards to share price performance
    when compared to some of its Australian gold producer peers. We expect
    that once commercial production is announced it will be rerated. This
    provides a good buying opportunity, especially with other near-term key
    catalysts which includes a resource upgrade for Hera (in the MarQ – growth
    with grade upside) and ongoing exploration (extensional drilling).

    At the end of the DecQ, Aurelia held cash was A$9.7m, with an additional
    A$10m recently raised via a rights issue (~43m shares @ 23.5cps). The
    proceeds will be used to accelerate exploration, provide additional working
    capital and for potential growth opportunities. Drawn debt is currently
    A$105m, with another A$50m available for future Nymagee development.

    We see good value in Aurelia, with a valuation of 59cps and 12-month price
    target of 65cps it remains a Buy. At current spot commodity prices our
    Aurelia NAV is 55cps, some 125% above current trading prices.

    Optimising gold circuits to improve recoveries

    Commissioning production for the DecQ consisted of 3,365oz of gold, and
    6,022t (dry metric tonnes) of lead and zinc concentrate. Generating
    estimated sales revenue of ~A$8.4m, which includes provisional
    concentrate sales of US$3.1m (85% of the shipment value with the balance
    due in the MarQ) and gold revenue of ~A$4.8m (average spot price of
    A$1,414/oz). At the end of the quarter, Aurelia held 26,445oz of gold put
    options at a price of A$1500/oz.

    Gold recoveries steadily improved during the DecQ, reaching 75%, and are
    expected to improve to over 90% in the MarQ following the installation of
    permanent oxygen dosing into the leach circuit and final optimisation of the
    gravity circuit. The lead and zinc recoveries to concentrate are already
    achieving over 95% recoveries which are well above the DFS expectations.

    Since Hera is still in the commissioning phase, all production revenues are
    currently being invested into mine development, with all site costs
    capitalised until commercial production is declared. Full scale stope
    production is now underway. Hera is planned to deliver annual production of
    over 39Koz gold and a further ~19Kt of lead-zinc concentrate over the initial
    mine life ~7 years.

    Hera North bonanza gold, lead and zinc zone now being drilled

    Surface exploration drilling is underway, initially following up bonanza goldlead-
    zinc-silver grades from a massive sulphide zone at Hera North, which
    reported ~17m @ ~15g/t Au, and ~31% Pb+Zn from 387m.

    Drilling at Hera will also test the theory that mineralisation links back to the
    Far West Lens and a new target (referred to as Beyond) located below and
    down-plunge of Hera North will also be drill-tested. Exploration remains a
    big value driver for the Company, and good drill results correlate well to
    share price appreciation. With exploration drilling proceeding well, news flow
    will be strong and we would expect an update soon.

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