By Tom Winnifrith & Steve Moore | Friday 17 March 2017
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Petropavlovsk (POG) has updated on its pressure oxidation hub development, with construction activities having fully resumed following bank debt refinancing.
The update notes a current schedule for commissioning to start in Q4 2018 and project economics, assuming a gold price of $1,200/oz, a foreign exchange rate of USD:RUR60 and average 2018-2032 production of 220,000 ounces per annum, including a net present value at a 10% discount rate of $603 million. There is then additional upside potential noted from exploration, expansion and tolling opportunities.
These are with the hub enabling Petropavlovsk to unlock value of refractory gold resources. As well as a significant part of its own current resource (9.3Moz of 20.2Moz, and with noted “under explored resource upside within the highly prospective 3,600km2 license holding”), the company emphasises that “more than 50% of Russia's defined gold resources are refractory or partially refractory” and that the overall gold sector “is increasingly unable to replace depleted oxide ounces”.
Further emphasising the potential growth, 2017 production (from non-refractory operations) of 420,000oz-460,000oz (2016: 416,000oz) is currently forecast. The shares have responded slightly higher, back above 6p – though this follows recent disappointing performance, with they having been above 7p earlier this year.
Whilst there remain clear risks – including commodity prices and debt, with also the company guarantor of a project finance facility ($234m principal outstanding, as at end of 2016) of 31.1% owned, Hong Kong-listed, iron ore concern IRC Ltd, we remain positive and continue to consider this a potentially very exciting gold recovery play which will re-rate as debt is paid down. At up to 7p, our stance remains buy with a 21p target.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next TWO share tips from Tom & Steve within TWO and a bit weeks and ahead of a new shorting idea from Lucian Miers next week click HERE
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