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Recent years have been ones of transition from open pit towards underground mining for Altyn (ALTN). However, production is now starting to increase again - and the anticipated marked increase from current levels looks far from discounted in the present valuation. As such, the shares are a buy
Operations: GoldBridges Global Resources until towards the end of last year, Altyn plc is a precious metals miner and explorer with operations in Kazakhstan and listed in London. It operates the Sekisovskoye gold and silver mine and is producing from, and further developing that, whilst also targeting further opportunities – including the adjacent prospective Karasuyskoye ore fields. Overall Proven and Probable reserves of 2.3 million ounces of gold and 3 million ounces of silver and Measured, Indicated and Inferred resources of 5.1 million ounces of gold and 3.5 million ounces of silver are noted, as well as that “several promising areas for detailed geological exploration in 2017 have been identified”.
Management Incentive: With experience including from being Executive Vice Chairman of mining company KazakhGold, CEO Aidar Assaubayev was appointed in late 2012. His remuneration in 2015 totalled $174,840 and the Assaubayev family (including Chairman Kanat Assaubayev) - through their investment vehicle African Resources Ltd – have a 61.69% shareholding. With more than 15 years of experience in the finance and management of resource companies, Executive Deputy Chairman Neil Herbert joined as a non-executive director in February 2016 and took his current role in February of this year – this including he issued 46,686,843 share options at 2.125p each.
Recent Financials & Trading: Production in 2016 was second half-weighted and totalled 10,970 ounces of gold and 16,519 ounces of silver. For the first quarter of 2017 the company has reported gold production of 4,289 ounces and silver of 3,632, adding it “is continuing to develop the higher-grade ore bodies”.
Neil Herbert added “the mine development is now starting to move towards the anticipated production profile. Grades and production will continue to improve with increasing quantities of better quality stoping ore of a higher grade being supplied to the plant, with the benefits of the recent capex now coming on stream”. At the 2016 half-year stage net borrowings were $13.3 million and are forecast to have ended the year at $14.5 million – this after $2.2 million of capex in the second half.
Risks: There are of course inherent risks of mining and exploration development not proceeding as planned. In terms of licencing, for example, we note that although the company “intends to seek to extend the contract in accordance with its terms… the subsoil use contract for Sekisovskoye is valid until 2020”. Such risks are potentially particularly pertinent here due to the net debt position and there is also likely some further external financing required. However, the major shareholding Assaubayev family are very supportive and unlikely to want to be diluted at near the current price.
There are of course also macro risks – in terms of politics, currency and the price of gold for example. However, there is also opportunity here – for example, broker to the company, VSA Capital’s gold price forecast is currently $1,270 for 2017, rising to $1,360 for 2019 and at $1,275 in the long-term. There are a number of potential catalysts for outperformance of such numbers – positively impacting the potential return.
Valuation: Earlier this month the company stated “the increase in productive capacity is expected to result in a run rate of 40-45koz of gold production during 2017”. This is with capex “in the region of US$15m increasing to US$20m in 2018 after adjusting for deferrals from 2016”.
However, VSA expects the capex to be outweighed by increased production cash flows – with (second half-weighted) net cash generation forecast for the full year and $18.5 million for 2018 (before repayment of borrowings and dividends). For 2019, with particularly production rising towards 100,000 ounces, helping ‘All-in Sustaining Cost’ down towards $600 per ounce, and capex returning to more normal levels, more than $56 million is forecast. The future plan is a dividend per annum of not less than 15% of net profit.
These numbers compare to a current market cap, with the shares at a 1.99p offer price, of £47 million ($61 million). VSA has a current 5p target price – and we consider the shares likely have further to go from there if the company delivers in line with projections.
As such at 1.99p, and currently up to 2.30p, the shares are a buy. The initial target is 5.75p.
This article first appeared - with the shares at a lower price - on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tips from Tom & Steve and more from Lucian next week click HERE
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