1. No category

AVB.asx
Speculative Buy
Avanco Resources Limited (AVB)
28 Nov 2014
Share Price
AVANCO RESOURCES LIMITED (AVB)
Copper-Gold: Developer / Explorer
Brazilian Cu developer on track for CY15 production
Avanco Resources is a copper developer and explorer focused on developing
the Antas (Stage 1) Copper project in the Carajas Province, Brazil. The
Company is looking to move the Antas project into production in late CY15
and with the second largest mineral tenure in the Carajas Province (behind
Vale) is well positioned for further exploration and development opportunities
in the region.
The Carajas mineral province is regarded as one of the world’s most
prospective geological regions and hosts a number of world class iron-oxidecopper-gold (IOCG) deposits with some of the highest Cu-Au grades globally.
The high grade nature of the Antas North deposit (2.65Mt @ 3.19% Cu,
0.66g/t Au for 85kt Cu, 56koz Au of ROM ore) has allowed AVB to move the
project towards a low capex / low opex ‘starter’ project which has potential to
fund further exploration and development.
Antas to start with, Pedra Branca (Stage 2) the company maker
Although the Company is focused on moving Antas (Stage 1) towards
production it is clear that the real upside exists with Pedra Branca (Stage 2).
Pedra Branca has the potential to produce in the order of ~30ktpa Cu &
25kozpa Au via an underground mine producing in the order of ~1.5Mtpa of
ore from dual declines (east and west deposits). With Stage 1 & 2 combined
AVB has potential to produce in the order of ~40ktpa Cu and ~30kozpa Au
from the two separate operating centres (located ~60km apart). We see
Antas as an excellent ‘starter’ project with Pedra Branca having the potential
to move the Company towards the mid-tier of copper producers on the ASX.
Plenty of upside still to be seen at Antas (Stage 1)
The Company has indicated the Antas project has potential to produce 12ktpa
Cu and 7kozpa Au via open pit mining methods over ~9 years based on a
mining rate in the order of 400-500ktpa. The Company has indicated that the
processing plant will have a nameplate capacity in the order of ~800ktpa. The
Company was able to purchase a mill with excess capacity at a reduced cost
due to the current market conditions.
$0.083
Valuation
$0.11
Price Target (12 month)
$0.13
Brief Business Description:
Cu-Au developer and explorer
Hartleys Brief Investment Conclusion
Brazilian Cu-Au developer ~12ktpa Cu & 7kozpa Au
from Antas (stage 1) with growth potential at Pedra
Branca (stage 2)
Chairman & MD
Colin Jones (Chairman & Non-Exec Director)
Tony Polglase (Managing Director)
Top Shareholders
Glencore
12.2%
Blackrock Group
11.4%
Appian Natural Resources Fund
11.2%
Company Address
Level 3, 680 Murray St
West Perth WA, 6872
Issued Capital
1661.7m
- fully diluted
1769.2m
Market Cap
A$137.9m
- fully diluted
A$146.8m
Cash (Sept 14a)
A$25.2m
Debt (Sept 14a)
A$0.0m
EV
A$112.7m
A$0.07/lb
EV/Resource lb
FY14a
FY15e
Prod (kt Cu)
Prelim. (A$m)
0.0
0.0
4.9
Op Cash Flw
-0.9
-7.1
15.8
Norm NPAT
-1.7
-6.0
15.0
CF/Share (cps)
-1.9
-2.2
-0.7
EPS (cps)
-2.1
-2.5
-0.8
P/E
-4.3
-3.7
-11.3
Mt
Cu(%) Au(g/t)
Resources
63.3
1.26
0.33
Reserves (ROM)
2.6
3.19
0.66
Reserves (Total)
3.6
2.53
0.55
Avanco Resources Ltd
0.12
25.
0.10
20.
0.08
15.
A$ 0.06
M
10.
0.04
5.
0.02
We see significant upside if the Company is able to increase the mining
capacity at Antas via pit optimisation of Antas North or exploration and
development of other deposits within close proximity. The Antas project has
a number of walk up drill targets outside of the main Antas North and Antas
South ore bodies. With further exploration success the Antas Copper project
has potential to move towards a production profile of up to ~20ktpa Cu and
~13kozpa Au (assuming no regulatory constraint) via multiple pits or
optimising the main Antas North deposit.
FY16e
0.00
Dec-13
Apr-14
Jul-14
.
Nov-14
Source: IRESS
Volume - RHS
AVB Shareprice - LHS
Sector (S&P/ASX SMALL RESOURCES) - LHS
Author:
Scott Williamson
Resources Analyst
Ph: +61 8 9268 3045
E: [email protected]
Initiate coverage with a Speculative Buy recommendation
AVB will be one of the ASX’s only small resources companies to move into
production in CY15. The Antas (Stage 1) Copper project will be the ‘starter’
to leverage the Company into growth and development of Pedra Branca
(Stage 2) and regional exploration (Stage 3) throughout the world class
Carajas Province. This staged approach will allow the Company to build a
mid-tier Brazilian copper mining business. We initiate coverage of AVB with
a Speculative Buy recommendation and a price target of 13 cents per share.
Hartleys Limited ABN 33 104 195 057 (AFSL 230052)
141
St Georges
Page
1 of 26 Terrace, Perth, Western Australia, 6000
Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Further information concerning Hartleys’ regulatory disclosures can be found on Hartleys
website www.hartleys.com.au
Avanco Resources Limited (AVB)
Hartleys Limited
28 November 2014
SUMMARY MODEL
Avanco Resources Ltd
AVB
Share Price
$0.083
Key Market Information
Share Price
Market Capitalisation - ordinary
Net Debt (cash)
Market Capitalisation - fully diluted
EV
Issued Capital
Options
Issued Capital (fully diluted inc. all options)
Issued Capital (fully diluted inc. all options and new capital)
$0.083
A$138m
-A$25m
A$147m
A$108m
1661.7m
107.6
1769.2m
2273.5m
Valuation
12month price target
$0.11
$0.13
P&L
Net Revenue
Total Costs
EBITDA
- margin
Depreciation/Amort
EBIT
Net Interest
Norm. Pre-Tax Profit
Reported Tax Expense
Normalised NPAT
Abnormal Items
Reported Profit
Minority
Profit Attrib
Unit
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
30 Jun 14
0.6
-1.1
-0.5
-96%
0.0
-0.5
-1.5
-2.0
0.0
-1.7
-30.3
-32.0
0
-32.0
30 Jun 15
0.0
-5.6
-5.6
0.0
-5.6
-1.5
-7.1
0.0
-6.0
-31.1
-37.1
0
-37.1
30 Jun 16 30 Jun 17
40.6
95.2
-21.3
-41.1
19.3
54.2
48%
57%
0.0
0.0
19.3
54.2
-1.5
-1.5
17.8
52.7
0.0
0.0
15.0
44.2
-27.2
-21.6
-12.2
22.7
0
0
-12.2
22.7
Balance Sheet
Cash
Other Current Assets
Total Current Assets
Property, Plant & Equip.
Exploration
Investments/other
Tot Non-Curr. Assets
Total Assets
Unit
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
30 Jun 14
32.2
0.2
32.4
0.1
45.2
2.0
47.4
79.8
30 Jun 15
37.1
0.0
37.1
40.1
23.2
2.0
65.4
102.5
30 Jun 16 30 Jun 17
31.9
3.7
3.3
7.8
35.2
11.5
88.1
158.1
1.2
-20.8
2.0
2.0
91.4
139.4
126.5
150.9
Short Term Borrowings
Other
Total Curr. Liabilities
Long Term Borrowings
Other
Total Non-Curr. Liabil.
Total Liabilities
Net Assets
Net Debt
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
A$m
0.9
0.9
0.9
78.9
-32.2
0.5
0.5
60.0
60.0
60.5
42.0
22.9
Cashflow
Operating Cashflow
Income Tax Paid
Interest & Other
Operating Activities
Unit
A$m
A$m
A$m
A$m
30 Jun 14
-1.3
0.0
0.4
-0.9
30 Jun 15
-5.6
0.0
-1.5
-7.1
Property, Plant & Equip.
Exploration and Devel.
Other
Investment Activities
A$m
A$m
A$m
A$m
-2.1
-7.2
0.0
-9.3
-40.0
-8.0
0.0
-48.0
-48.0
-8.0
0.0
-56.0
-70.0
-8.0
0.0
-78.0
Borrowings
Equity or "tbc capital"
Dividends Paid
Financing Activities
A$m
A$m
A$m
A$m
0.0
38.7
0.0
38.7
60.0
0.0
0.0
60.0
0.0
35.0
0.0
35.0
0.0
0.0
0.0
0.0
Net Cashflow
A$m
28.5
4.9
-5.3
-28.2
Shares
Ordinary Shares - End
Ordinary Shares - Weighted
Diluted Shares - Weighted
Unit
m
m
m
30 Jun 14
1661.7
1661.7
1661.8
30 Jun 15
1661.7
1661.7
1661.8
30 Jun 16 30 Jun 17
1662.3
1662.3
1662.0
1662.3
1662.0
1662.3
30 Jun 14
-0.1
-148.8
-1.9
-4.3
0.0
0.0%
-69%
na
na
30 Jun 15
-0.4
-19.5
-2.2
-3.7
0.0
0.0%
35%
na
na
30 Jun 16 30 Jun 17
0.9
3.0
8.8
2.8
-0.7
1.4
-11.3
6.1
0.0
0.0
0.0%
0.0%
30%
39%
13.0
36.4
23%
51%
1.7
1.7
60.0
60.0
61.7
64.8
28.1
3.4
3.4
60.0
60.0
63.4
87.5
56.3
30 Jun 16 30 Jun 17
17.2
51.3
0.0
0.0
-1.5
-1.5
15.8
49.8
Speculative Buy
Directors
Colin Jones (Chairman & Non-Exec Director)
Tony Polglase (Managing Director)
Scott Funston (Dir/Company Sec)
Simon Mottram (Executive Director)
Wayne Phillips (Executive Director)
Luis Azevedo(Non-Exec Director)
Company Information
Level 3, 680 Murray St
West Perth WA, 6872
+61 8 9324 1865
+61 8 9200 1850
www.avancoresources.com
Top Shareholders
Glencore
Blackrock Group
Appian Natural Resources Fund
m shares
203.1
189.4
185.4
Reserves & Resources
Mt Cu (%)
TOTAL RESOURCE (inclusive of Reserve)
Measured
3.4
2.72
Indicated
9.2
0.97
Inferred
49.8
1.20
Reserve
3.6
2.53
Au (g/t)
0.65
0.25
0.33
0.55
%
12.2
11.4
11.2
Cu (kt) Au (koz)
93
89
602
91
69
71
514
64
Production Summary
Mill Throughput
Strip Ratio
Mined grade
Combined Recovery & Payability
Copper
Gold
Copper Equiv
M&I Resource Conversion
Mine Life
Unit
Mt
x
%
%
(kt)
(koz)
(kt)
%
yr
Jun 14 Jun 15
0.0
0.0
0.0
0.0
0.00
0.00
0.0%
0.0%
0.0
0.0
0.0
0.0
0.0
0.0
0.0%
0.0%
9.75
9.75
Jun 16
0.2
7.5
3.00
81.0%
4.9
3.9
5.4
68.6%
9.75
Jun 17
0.5
7.5
3.00
81.0%
10.9
8.7
12.1
61.7%
9.75
Costs
Cost per milled tonne
EBITDA / tonne milled ore
Unit
$A/t
$A/t
Jun 14 Jun 15
-
Jun 16
62.8
96.5
Jun 17
62.8
120.4
C1: Operating Cash Cost = (a)
(a) + Royalty = (b)
C2: (a) + depreciation & amortisation = (c)
(a) + actual cash for development = (d)
C3: (c) + Royalty
(d) + Royalty
$A/lb
$A/lb
$A/lb
$A/lb
$A/lb
$A/lb
1.17
1.44
1.17
2.82
1.44
3.08
1.17
1.45
1.17
1.90
1.45
2.18
Price Assumptions
AUDUSD
Copper
Gold
Unit
A$/US$
US$/lb
US$/oz
Jun 16
0.94
3.15
1283
Jun 17
0.91
3.25
1304
Hedging
Hedges maturing?
-
-
Jun 14 Jun 15
0.92
0.91
3.23
3.07
1286
1253
No
Jun 14 Jun 15 Jun 16 Jun 17
No
No
No
Sensitivity Analysis
Ratio Analysis
Unit
Cashflow Per Share
A$ cps
Cashflow Multiple
x
Earnings Per Share
A$ cps
Price to Earnings Ratio
x
Dividends Per Share
AUD
Dividend Yield
%
Net Debt / Net Debt + Equity %
Interest Cover
X
Return on Equity
%
Analyst: Scott Williamson
+61 8 9268 3045
"tbc capital" could be equity or debt. Our valuation is risk-adjusted for how this may be obtained.
Sources: IRESS, Company Information, Hartleys Research
FY17 NPAT
22.7
21.6 (-4.6%)
Valuation
Base Case
0.11
Spot Prices
0.14 (31.5%)
Spot USD/AUD 0.86, Copper $3.01/lb, Gold $1,199/oz
AUDUSD +/--10%
0.06 / 0.16 (-44.6% / 49.9%)
Copper +/--10%
0.15 / 0.06 (40.2% / -43.6%)
Production +/--10%
0.11 / 0.11 (0.0% / 0.0%)
Operating Costs +/--10%
0.08 / 0.13 (-23.5% / 22.2%)
Unpaid Capital
Year Expires
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
TOTAL
No. (m)
10.0
97.6
0.0
0.0
0.0
107.6
Share Price Valuation (NAV)
100% Pedra Branca (pre-tax NAV at disc. rate of 14%)
100% Antas North (pre-tax NAV at disc. rate of 12%)
Other Exploration
Forwards
Corporate Overheads
Net Cash (Debt)
Tax (NPV future liability)
Options & Other Equity
Hedging
Total
Page 2 of 26
13.9 / 31.8 (-38.6% / 40.2%)
29.9 / 14.0 (31.9% / -38.1%)
22.0 / 22.0 (-3.1% / -3.1%)
19.1 / 24.8 (-15.6% / 9.3%)
$m
1.7
12.1
0.0
0.0
0.0
13.7
Avg price % ord
0.17
1%
0.12
6%
0.00
0%
0.00
0%
0.00
0%
0.00
6%
Risked Est. A$m
111
95
50
0
-31
25
-20
9
0
239
Est. A$/share
0.05
0.04
0.02
0.00
-0.01
0.01
-0.01
0.00
0.00
0.11
Last Updated: 28/11/2014
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
COMPANY OVERVIEW
Avanco Resources is
an ASX-listed copper
explorer / developer
The Antas (Stage 1)
copper Project is
located in the Carajas
Province, Brazil
AVB acquired the
Pedra Branca (Stage
2) project from Xstrata
Copper in Feb 201 2
Avanco Resources Limited (“Avanco”, “AVB”, “Company”) is a copper developer and
explorer focused on projects within the Carajás Mineral province in northern Brazil.
Avanco is targeting near term copper production from the high grade Antas mine
(“Antas”, “Stage 1”) while continuing to explore and develop the larger Pedra Branca
(“Pedra Branca, “Stage 2”) project.
AVB listed on the ASX in December 2007 for the purpose of acquiring and developing
copper projects in Brazil. The Company’s initial exploration was focused on the Antas
North & Antas South deposits within the Rio Verde licence area. Initial focus was on
shallow oxide mineralisation amenable to traditional heap leach and Solvent
Extraction Electrowinning (SX-EW) processing. As AVB began to intersect high grade
primary sulphide mineralisation at Antas North the focus soon moved to the potential
for a larger primary iron-oxide-copper-gold (IOCG) system. AVB has toiled with Iron
Ore (Trindade North) and Nickel-Platinum (Touro) projects but has always focussed
primarily on Carajás Copper-Gold.
In February 2012 AVB acquired a 100% interest in the Pedra Branca Project from
Xstrata Copper. Xstrata (now Glencore) received 15% of AVB’s share capital and
became the Company’s largest shareholder. Pedra Branca is now the second priority
project (Stage 2) for AVB with focus now on moving the Antas mine (Stage 1) into
production in late CY15. AVB plans to progress the Pedra Branca project towards a
‘decision to mine’ in late CY15. Antas was granted a full mining licence in September
2014 and AVB is currently finalising the required US$70m project financing. AVB
plans to raise $58m in senior debt with Brazilian bank Banco Votorantim and
syndicated banks with a further $12m recently agreed from a royalty agreement with
Blackrock World Mining Trust.
Fig. 1:
Avanco Resources Project Locations
Avanco is currently
finalising debt funding
for Antas (Stage 1)
Source: Avanco Resources Limited
Page 3 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
ANTAS (STAGE 1) PROJECT
Fig. 2:
Antas (Stage 1) Copper Project Snap Shot
Antas Copper Project
The Antas copper
project is located in
the Carajas province
of Brazil
Interest:
100%
Location:
Carajas, Brazil
Project Stage:
Development
Ore Reserves (Total):
3.63Mt @ 2.53% Cu, 0.6g/t Au for 92kt Cu, 64koz Au
Ore Reserves (ROM):
2.6Mt @ 3.19% Cu, 0.7g/t Au for 84kt Cu, 56koz Au
Mineral Resources:
Antas North – 6.38Mt @ 2.38% Cu, 0.5g/t Au
Antas South – 10.08Mt @ 0.83% Cu, 0.2g/t Au
AVB listed in
December 2007 with
two Brazilian copper
projects
Scale:
Antas North ~400-500ktpa for 12ktpa Cu,7kozpa Au
Mine Life:
~10 years
C1 Cash Cost:
~US$1.30/lb
All In Sustaining Cost:
~US$1.50/lb
Source: Hartleys Research, Avanco Resources Limited
Background
AVB listed on the ASX in December 2007 with two copper projects, Serra Verde and
Rio Verde. Previous exploration by Barrick has identified a number of prospects within
the Rio Verde project, namely Antas South, Antas North, BIF, Clovis, Capivara,
Lazinho and Paulinho. AVB focused initial exploration programs at Rio Verde around
Antas North and South and has conducted minimal exploration outside of these
prospects. As the potential of the Antas prospects became recognised the project
began being referred to as the Antas Copper project.
Antas was first
explored by Barrick
Barrick acquired the Rio Verde property in late 1998 and over a 16 month period
conducted geological mapping, stream sediments, soil sampling, geophysics, auger,
RC and diamond drilling. Barrick drilled a total of 20 shallow diamond and RC holes
over the five prospects with initial limited success. Between 2000 and 2001 Noranda
Inc conducted further drilling focused on Antas North before rescinding its option over
the property in 2002. In October 2007 AVB purchased Apoquindo Brazil Mineracao
and secured the rights to 100% of the Rio Verde & Serra Verde properties.
Location and Geology
The Carajas region
hosts a number of
world class IOCG
deposits
The Antas copper project is located between the towns of Parauapebas and
Curionopolis within the Carajas mineral province in northeast Brazil. The Carajas
region hosts a number of world class iron-oxide-copper-gold (IOCG) deposits
including Sossego, Salobo, Igarape Bahia and Cristalino all owned by Vale.
The Carajas region is located in the south eastern portion of the Archaean-age
Amazonian craton. The Carajas mineral province consists of greenstones and
intrusive granitoids and the tectonic evolution involved several episodes of faulting
which possibly formed and later reactivated the Carajas Basin rocks. Several types
of deposits are recognised in the Carajas mineral province including iron, copper, gold,
manganese, nickel and bauxite. Most of the deposits are located in the northern
portion of the province and stratigraphically and tectonically associated with the
Archaean Itacaiunas Supergroup.
Page 4 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
Fig. 3:
28 November 2014
Antas Copper Project (Rio Verde) Location
Source: Avanco Resources Limited
Carajas IOCG
deposits similar to
those of the Mt Isa
inlier
IOCG deposits are typically associated with rifting and intracratonic extensional
tectonics and occur as veins and breccias within a variety of sedimentary and volcanic
rocks and intrusive stocks. The Carajas IOCG deposits are thought to belong to the
same deposit type as the eastern succession of the Mount Isa inlier which hosts
deposits such as Ernest Henry.
Fig. 4:
Antas Copper project prospect locations
Source: Avanco Resources Limited
Page 5 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
Antas North
Antas North was
initially explored by
Barrick
Antas North was explored initially in 1999 by previous owner Barrick who identified a
700m long by 200-400m wide Cu-Au in soil anomaly and drilled an initial 10 hole
program. With good initial results from this maiden program (ie 49m @ 2.4% Cu,
0.4g/t Au) Antas North was an obvious priority target in the early years of AVB. The
Company continued to discover and delineate high grade Cu-Au mineralisation at
Antas North over the subsequent years and recently announced a maiden reserve
estimate of 3.63Mt @ 2.53% Cu, 0.6g/t Au for 92kt Cu, 64koz Au. This reserve
estimate is the basis for the Antas Copper project which is estimated to produce
~12ktpa Cu, 7kozpa Au over a ~9 year mine life. The Antas Copper project was
granted a full mining licence in September 2014 and the Company is aiming for first
copper production in CY15.
Fig. 5:
Antas North cross section
Antas North has a
reserve of 3.63Mt @
2.53% Cu, 0.6g/t Au
for 92kt Cu, 64koz Au
Antas processing
plant nameplate
capacity ~800ktpa
Source: Avanco Resources Limited
Antas North head
grade initially ~3% Cu
and ~0.6g/t Au
Mining at Antas North will be at a rate to be determined by further optimisation
although the processing plant will be configured with a nameplate capacity of
~800ktpa. The Antas North mine will be mined at a head grade of ~3% Cu and ~0.6g/t
Au for the first 5 years producing with mine site cash costs in the order ~US$1.00/lb.
Current scheduling sees the majority of mining completed over the initial 6 years with
the remaining ~3 years consisting mainly of stockpile processing. The Antas project
is based on open pit mining of the Antas North deposit with a LOM strip ratio of ~7.5:1.
Potential exists to extend the mine life at Antas North in the order of ~2-3 years via
underground mining methods. Assuming consensus commodity prices we envisage
underground mining will commence after the completion of open pit mining (~Year 7)
with underground ore likely to be blended with the open pit lower grade stockpiles.
We view optimisation and exploration within and around Antas North as an efficient
use of exploration and development funding. The potential benefit of the oversized
mill is a major opportunity for the Company and should be seen as a priority in the
short term. At this early Stage we see the return on capital invested into optimising
Antas (Stage 1) may potentially outweigh an investment into the other projects.
Page 6 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
Fig. 6:
28 November 2014
Antas North long section
Antas South is ~300m
south of Antas North
Antas South
supergene is 210kt @
11.65% Cu
Source: Avanco Resources Limited
Antas South
High grade sulphide
zone of 2Mt @ 1.64%
Cu, 0.32g/t Au
Antas South is located ~300m south of Antas North and was also initially identified by
Barrick. Antas South is characterised by a larger 2,000m long by 400m wide Cu-Au
anomaly associated mainly with broad disseminted mineralisation. AVB has identified
a supergene copper zone at Antas South with a resource estimate of 210kt @ 11.65%
Cu. This supergene copper zone is potentially amenable to a DSO product. AVB is
yet to decide the appropriate strategy for exploitation of the supergene copper zone
at Antas South.
The global resource estimate at Antas South is currently 10.1Mt @ 0.83% Cu, 0.2g/t
Au for 85kt Cu, 65koz Au although a high grade sulphide zone of 2Mt @ 1.64% Cu,
0.32g/t Au. Our understanding is this sulphide zone is potentially amenable to open
pit mining and has potential to add to the annual production production profile of the
Antas Copper project. We expect AVB to conduct further studies in CY15 into the
potential to incorporate Antas South into the Antas Copper project.
Fig. 7:
Antas South plan view
Antas South sulphide
zone is potentially
amenable to Open Pit
mining
Source: Avanco Resources Limited
Page 7 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
Clovis
Clovis is a small
breccia pipe with
initial high grade hits
drilled by Barrick
requiring follow up
The Clovis prospect is located ~3 kilometres south of Antas North and the proposed
processing plant. Mineralisation occurs within a magnetite rich breccia zone (small
breccia pipe). Clovis is thought to be an Olympic Dam-type IOCG similar to one of the
deposits at Sossego (~50 km to the southwest). A total of eight holes have been
drilled by Barrick at Clovis. AVB has focussed exploration on Antas North and South
and is still to follow up on Barrick’s initial exploration program. The high grade
mineralisation at Clovis (ie 17.1m @ 2.20% Cu, 0.18g/t Au) remains open along strike
and at depth. Clovis requires further work to explore its potential to be a feed source
for the Antas processing plant.
Fig. 8: Rio Verde Cu-Au soil anomaly
Source: Avanco Resources Limited
Paulinho
Paulinho has a broad
IP anomaly and
disseminated copper
mineralisation
The Paulinho prospect is located ~3 kilometres northwest of Antas North and the
proposed processing plant. The Paulinho prospect is characterised by a broad
geophysical induced polarisation anomaly. The initial drilling by Barrick identified
broad disseminated mineralisation (ie 126m @ 0.21% Cu from 64m) typically
associated with large mineralised systems. Further drill testing is required at Paulinho
to explore the potential for higher grade mineralisation and delineate the extent of the
large mineralised system.
Page 8 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
PEDRA BRANCA (STAGE 2) PROJECT
Fig. 9:
Pedra Branca (Stage 2) Copper Project Snap Shot
Antas Copper Project
Pedra Branca is the
flagship (Stage 2)
project
Interest:
100%
Location:
Carajas, Brazil
Project Stage:
Development (pre-scoping)
Ore Reserves:
Nil
Mineral Resources:
46.8Mt @1.2% Cu,0.33g/t Au for 560ktCu, 500kozAu
Scale:
~1.5Mtpa to produce ~30ktpa Cu, 25kozpa Au
Mine Life:
~10 years
C1 Cash Cost:
~US$1.70/lb
All In Sustaining Cost:
~US$2.20/lb
Source: Hartleys Research, Avanco Resources Limited
AVB acquired Pedra
Branca from Xstrata
Copper via an all scrip
deal (15% of AVB)
Two underground
areas producing
~1.5Mtpa
Background
In February 2012 AVB announced the acquisition of the Pedra Branca project from
Xstrata Copper (Xstrata). The all scrip deal saw Xstrata issued with 15% of AVB’s
share capital and AVB to pay a $10m deferred cash payment over the first year of
production at Pedra Branca. At the time of the acquisition AVB announced a maiden
resource at Pedra Branca of 14.8Mt @ 1.3% Cu,0.46g/t Au for 192kt Cu & 218koz Au.
Since the acquisition, Avanco has focused on exploration and development of Pedra
Branca as the flagship (Stage 2) project. Pedra Branca currently has an inferred
resource of 46.8Mt @ 1.2% Cu, 0.33g/t Au for 560kt Cu, 500koz Au. AVB is currently
considering a relatively large underground mining scenario at Pedra Branca focused
on the high grade ore (+2% Cu) and mining both the east and west deposits from dual
declines. Each mining area will produce in the order of 700-800ktpa from transverse
and longitudinal open stoping methods with paste backfill. This mining method allows
for bulk tonnage, lower underground mining costs at increased throughput capacities
(~1.5Mtpa).
Fig. 10:
Pedra Branca conceptual underground mine design
UG mining of high
grade ore (+2% Cu)
Source: Avanco Resources Limited
Page 9 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
Location and Geology
The Pedra Branca copper project is located 60km from Antas and ~15km from Vale’s
world class (~120ktpa Cu) Sossego Cu-Au mine (355Mt @ 1.3% Cu, 0.3g/t Au). The
area has excellent infrastructure due to the substantial $19.5b investment by Vale in
developing the Serra Sul Iron Ore project nearby.
Pedra Branca (Stage
2) is 60km from
Antas (Stage 1)
Pedra Branca is made up of two main ore zones being the east and west deposits
divided by a northwest fault. The geology includes diorites, granites and gneisses with
later Stage pegmatite dykes, mafic and felsic porphyritic intrusions.
Fig. 11:
Pedra Branca geology
Pedra Branca has
east and west ore
zones
Source: Avanco Resources Limited
Fig. 12:
Pedra Branca Cross section
Pedra Branca is
associated with a
large shear zone
Source: Avanco Resources Limited
Page 10 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
Pedra Branca East
The shear zone associated with Pedra Branca runs EW-NE and is sub-vertical with
underlying foliation dipping 70-80° south. The shear zone is a conduit for the fluids
associated with the hydrothermal mineralisation.
Sub vertical with
foliation dipping 7080°
Mineralisation is associated with chalcopyrite, pyrite and pyrrhotite with tabular subvertical orebodies. Pedra Branca East has a strike length of over 800m and widths
ranging from 10-50m extending below known drilling to +800m depth. The medium to
high grade ore with significant widths sees Pedra Branca amenable to bulk tonnage
sublevel open stope mining.
Fig. 13:
Pedra Branca East Long section
Pedra Branca East
widths of 10-50m and
depths +800m
Pedra Branca west
has widths of 4-115m
Source: Avanco Resources Limited
Pedra Branca West
Pedra Branca West is situated within a splay associated with the main shear zone with
a sub-vertical foliation dipping to the south. Mineralisation is primarily disseminated
pyrite and chalcopyrite in veins and stringers along the foliation of the fault splay. The
strike of Pedra Branca West is +500m with widths ranging from 4-115m and remains
open at +600m deep. The west body is generally higher tonnage and lower grade than
the east and hence more amenable to bulk tonnage transverse stoping methods.
Pedra Branca is likely
to extend beyond ~10
years mining
Pedra Branca East and West have potential to combine via dual underground declines
to produce in the order of 1.5Mtpa for ~10 years mining to ~300m depth. Assuming
the mineralisation at both orebodies extends to depths of >600-800m we can see
potential for a large, bulk tonnage, long life underground Cu-Au mining operation at
Pedra Branca.
Page 11 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
East Pedra Branca Prospect
East Pedra Branca prospect is located immediately east and along the extension of
the magnetic anomaly associated with Pedra Branca. IOCG type hydrothermal
alteration similar to Pedra Branca has been identified in the area. Copper soil anomaly
values at this prospect compare to those seen over the Pedra Branca deposit. With
coincident magnetic and geochemical signatures within close proximity to Pedra
Branca the East Pedra Branca prospect has potential for the discovery of further CuAu mineralisation. Four diamond drillholes are planned to be drilled at the East Pedra
Branca prospect over the coming months.
Fig. 14:
East Pedra Branca prospect
East Pedra Branca
prospect to be drilled
over the coming
months
Source: Avanco Resources Limited
Page 12 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
REGIONAL EXPLORATION (STAGE 3)
While AVB’s projects team are soon to commence construction of the Antas Copper
mine the exploration team has recently begun exploring for the next project (Stage
3). The Company is committed to identifying new growth opportunities and to drilling
out the Pedra Branca (Stage 2) deposit. A number of exciting prospects exist within
relatively close proximity to the two existing projects.
AVB is committed to
regional exploration
(Stage 3)
Fig. 15:
Regional exploration prospects location
Nova Esperança is
currently being drilled
Source: Avanco Resources Limited
São Pedro has three
holes planned
Nova Esperança
The Nova Esperança prospect is located ~32km west of Pedra Branca (Stage 2) and
comprises of a magnetic anomaly with a strike of over 2.7km. The prospect also has
coincident soil geochemistry, VTEM conductors and very strong IOCG hydrothermal
alteration (appears almost identical to Pedra Branca). AVB recently commenced a six
hole diamond drill program with the first hole intersecting 15m @ 1.06% Cu, 0.21g/t
Au from 81m.
São Pedro
Água Azul has soil
anomalies over 5km of
strike
The São Pedro prospect is located ~28km west of Pedra Branca (Stage 2) and
comprises regional IOCG alteration and proximal alteration associated with
chalcopyrite mineralisation similar to that seen at Pedra Branca and Sossego. Three
diamond drillholes are planned to test the coincident geochemical / magnetic anomaly
over the coming months.
Água Azul
The Água Azul prospect is located ~60km W-SW of Pedra Branca (Stage 2) near the
Água Azul de Norte township. Numerous soil anomalies are present along 5km of
strike and coincident with hydrothermal magnetite. Drilling will be conducted over the
coming months to test three prospective zones.
Rio Branco
The Rio Branco prospect is located ~11km northwest of Pedra Branca (Stage 2) and
close to the road connecting Sossego and Serra Sul. Two holes are planned to test
the Cu in soil anomaly at Rio Branco.
Page 13 of 26
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
Resources and Reserves
Resource estimates have been completed for the Antas North and Antas South
deposits and Pedra Branca. Antas North is the only deposit that has been converted
to a reserve estimate as this deposit is the basis for the Antas Copper Project (Stage
1). AVB has used a 0.9% cutoff grade for the run-of-mine (ROM) ore and 0.65% cutoff
for the low grade stockpiles which will be processed towards the end of the minelife.
The ore reserve estimate assumes mining by Open Pit and sulphide only processing
via traditional froth flotation methods. AVB used a US$3.20/lb copper price and
US$1,200/oz gold price for the Antas reserve estimate. All resource and reserve
estimates have been compiled by independent consultants and are JORC compliant.
Fig. 16:
AVB Total Resource Estimate
Deposit
Classification
Tonnage
(Mt)
Cu Grade
(%)
Au Grade
(g/t)
Copper (kt)
Gold (koz)
Antas North
Measured
2.83
3.01
0.72
85
66
Antas North
Indicated
1.65
2.20
0.42
36
22
Antas North
Inferred
1.9
1.59
0.23
30
14
Antas North
Total
6.38
2.38
0.50
152
102
Antas South
Measured
0.59
1.34
0.18
8
3
Antas South
Indicated
7.5
0.7
0.2
53
49
Antas South
Inferred
1.1
1.1
0.03
12
0.4
Antas South
Total
10.08
0.83
0.2
85
65
Pedra Branca
Inferred
46.82
1.2
0.33
560
500
Total
M&I
12.57
1.45
0.35
182
140
Total
MI & I
63.28
1.26
0.33
797
667
Source: Avanco Resources Limited
Fig. 17:
Antas Copper Project Ore Reserve Estimate
Type & Cutoff
Classification
Tonnage
(Mt)
Cu Grade (%)
Au Grade
(g/t)
Copper (kt)
Gold (koz)
ROM (+0.9% Cu)
Proven
1.38
3.62
0.74
50
33
ROM (+0.9% Cu)
Probable
1.26
2.72
0.57
34
23
LG (0.65<0.9% Cu)
Proven
0.34
0.74
0.30
2
3
LG (0.65<0.9% Cu)
Probable
0.63
0.72
0.23
5
5
Total
Proven &
Probable
3.63
2.53
0.55
91
64
Source: Avanco Resources Limited
Page 14 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
GEOGRAPHIC AND INDUSTRY EXPOSURE
Brazil is the world’s fifth largest country and boasts a rich geology with mineral
resources including bauxite, gold, iron ore, manganese, nickel, platinum, tin and
uranium. Only ~30% of Brazil’s surface area has been geologically mapped and with
modern exploration techniques there is increased likelihood for discoveries in Brazil
compared to the more traditional mining centres. Brazil has a vibrant and modern
mining industry and a relatively open and stable legislative framework. The Brazilian
economy is developing rapidly and much of this development can be attributed to the
strength of the Brazilian mining industry.
Brazil is the world’s
fifth largest country
The Carajas mineral province is regarded as one of the world’s most prospective
regions for the discovery of Cu-Au, nickel and Iron Ore deposits. The province hosts
a number of world class iron-oxide-copper-gold (IOCG) deposits including Sossego
(355Mt @ 1.3% Cu, 0.3g/t Au), Salobo (800Mt @ 0.96% Cu, 0.5g/t Au), Cristalino
(500Mt @ 1.32% Cu, 0.3g/t Au) and Igarape Bahia (219Mt @ 1.4% Cu, 0.86g/t Au)
which are all currently owned by Vale.
Fig. 18:
Carajas Mineral Province location
Brazil has a vibrant
and modern mining
industry
The Carajas mineral
province is regarded
as one of the world’s
most prospective
geological regions
Source: Avanco Resources Limited
Page 15 of 26
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
PEER COMPARATIVES
AVB has one of the largest market capitalisation of the ASX listed copper developers.
AVB is one of the closest of its peer group to moving into production. On EV/Resource
lb metrics AVB is trading broadly in line with the median for the copper sector. We
believe AVB is being valued fairly when compared to peers in the sector, we’d expect
AVB to re-rate as the Company moves towards producer status. AVB compares well
to DRC focussed peer Tiger Resources (TGS) with similar total resource tonnes and
grade, market cap and EV metrics. AVB’s Staged development approach is similar to
how TGS has achieved its current status.
Fig. 19:
AVB is trading broadly
in line with median
EV/ Resource lb
metrics
Market capitalis ation copper compar atives
1,200
Market Capitalisation
1,000
A$m
800
600
400
200
AVI
NCO
VRX
SRQ
VXR
RER
KBL
MMC
MNC
KGL
DML
ABY
RXM
RTG
HCH
IAU
HGO
FND
AVB
AOH
TGS
SFR
CDU
OZL
PNA
0
AVB is being valued
fairly in comparison to
peers
Source: Hartleys Research
Fig. 20:
EV / Resource l b copper compar atives
0.70
EV/Resources lb
0.60
0.50
A$/lb
0.40
0.30
0.20
0.10
$0.05/lb
-0.10
Source: Hartleys Research
Page 16 of 26
IAU
ABY
AOH
NCO
AVI
MNC
RXM
VXR
MMC
KGL
DML
OZL
RER
AVB
HCH
PNA
VRX
SRQ
TGS
KBL
HGO
FND
RTG
SFR
0.00
CDU
.
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
Fig. 21:
Tot al resource t onnes and grade c ompar atives
5.00
9,000.0
Resources Kt Cu
4.50
4.50
8,000.0
4.00
7,000.0
3.50
6,000.0
2.40
2.50
2.19
4,000.0
2.00
1.80
1.60
3,000.0
2,000.0
1.33
1.31
1.29
1.68
1.60
1.50
1.26
1.20 1.14
1.05
0.85
1.00
0.78
0.60 0.57
0.47 0.50
1,000.0
0.48 0.45
0.40
0.50
KBL
VRX
RER
RTG
FND
NCO
KGL
HGO
VXR
SRQ
CDU
HCH
AVI
SFR
IAU
AVB
TGS
AOH
DML
RXM
ABY
MMC
PNA
OZL
MNC
0.0
AVB works with CSA
global and Onyx
projects for
development studies
and geological
consulting
Grade %Cu
3.00
2.69
2.65
5,000.0
Kt Cu
AVB has one of the
higher grade copper
resources on the ASX
0.00
Source: Hartleys Research
KEY SUPPLIERS & CUSTOMERS
AVB currently uses CSA global for geological consulting, resource estimates and
feasibility study work. The Company also works with Onyx projects for engineering
design and studies.
.
Page 17 of 26
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
MANAGEMENT, DIRECTORS AND
MAJOR SHAREHOLDERS
Fig. 22:
Colin Jones is an
underground Mining
Engineer
Economic Exposure of Board and key management
Economic Exposure of Board and key management
Total
Total Options
Shares
Economic
#
Exposure
Position
rank
Directors
Colin Jones
Chairman & Non-exec Director
10,000,000
782,120
10,782,120
3
Tony Polglase
Managing Director
30,000,000
6,162,693
36,162,693
1
Scott Funston
Director & Company Secretary
5,000,000
1,557,728
6,557,728
5
Simon Mottram
Director
20,000,000
1,356,974
21,356,974
2
Wayne Phillips
Director
5,000,000
150,000
5,150,000
6
Luis Azevedo
Non-Exec Director
10,000,000
768,750
10,768,750
4
Source: Avanco Resources Limited
Management resumes are taken from www.avancoresources.com.au
Colin Jones, Chairman
Colin Jones is an
independent
consultant for Rio
Tinto underground
mining
Mr Jones started his mining career with British Coal in South Wales and following Coal
Mine certification, completed a mining degree at Cardiff University in the UK. Several
years of contract management followed with Thyssens, supervising development,
including mechanised mine development and shaft sinking activities. His executive
mine management experience culminated at Rio Tinto’s world class Copper Mine in
Portugal where he was the Project Manager and later became the Director of
Production.
Mr Jones consulting expertise includes 10 years with Rio Tinto Technical Services
where, as Principal Consultant, he consulted globally. Mr Jones was responsible for
the underground development of the Fortaleza Nickel Mine in Brazil and was a core
consultant for the underground development at the Palabora mine in South Africa.
An authority in the application of the block caving method for economic mining of low
grade deposits, Mr Jones is currently a consultant for the multi-billion dollar Resolution
copper mine project in the US and is also a consultant for the underground mine
development at Argyle Diamonds in Western Australia.
Tony Polglase is a
Metallurgist with 40
years of mining
experience
Mr Jones is an independent consultant to Rio Tinto, has an MBA, speaks Portuguese
and maintains a residence in Brazil
Tony Polglase, Managing Director
With nearly 40 years multi-disciplined mining experience across 10 different countries,
Mr Polglase is qualified in mechanical and electrical engineering with an honours
degree in Metallurgy from the Camborne School of Mines, UK.
Mr Polglase has acquired detailed knowledge relating the development and operation
of gold, copper, lead, zinc and tin projects and has either been responsible for or
closely involved with the commissioning of more than seven mining projects. Previous
employers include Iberian Resources, Ivernia Corp, Rio Tinto, TVX and Ashanti
Goldfields.
Project management including critical evaluation, implementation and commissioning
are Mr Polglase’s strengths. Mr Polglase has a demonstrated ability of successfully
bringing projects on line in the most challenging of environments including former
Soviet Union countries. Mr Polglase is fluent in Portuguese.
Page 18 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
Scott Funston, Executive Director & Company Secrectary
Scott Funston is a
Chartered Accountant
and Company
Secretary
Mr Funston is a qualified Chartered Accountant and Company Secretary with nearly
15 years’ experience in the mining industry and the accounting profession. His
expertise is financial management, regulatory compliance and general corporate
advice. Mr Funston possesses a strong knowledge of the Australian Securities
Exchange requirements and currently assists or has assisted a number of resources
companies operating throughout Australia, South America, USA, Asia, Africa and
Canada with financial accounting, stock exchange compliance and regulatory
activities.
Simon Mottram, Executive Director
Mr Mottram is a geologist with over 20 years’ experience predominantly in iron oxide
copper gold, nickel sulphide and precious metals.
Having held senior management positions with a number of successful mining
companies both in Australia and overseas Mr Mottram has extensive knowledge in
base and precious metal evaluations, and has seen a number of discoveries advanced
through to commercial mine development, and has been central to several significant
exploration successes.
Simon Mottram is a
geologist with over 20
years
His exploration experience aligns extremely well with Avanco’s projects and Mr
Mottram is an expert in the application of modern exploration techniques, large-scale
drill programmes and feasibility studies. Mr Mottram is a graduate of Melbourne RMIT
University, a Fellow of the AusIMM, speaks Portuguese, and assumes responsibility
for all of the company’s exploration activities
Wayne Phillips, Executive Director
Having graduated from the University of Rhodesia with a degree in Chemical
Engineering, Mr Phillips migrated to Brazil in 1977 and has since become a Brazilian
national. He is a fluent speaker of Portuguese.
Wayne Phillips is a
Chemical Engineer
Mr Phillips specialises in providing innovative practical solutions to complex metallurgy
is, with particular expertise in flotation and hydrometallurgy including copper oxide
leaching and SX-EW.
Mr Phillips spent several years working within major engineering companies including
SNC Lavalin, Kvaerner and Minproc as client representative for a number of major
mining projects.
All directors speak
Portuguese
Mr Phillips was the Technical Director of Kinross South America and oversaw Kinross’
Technical Services activities in Brazil and Chile. Responsibilities included exploration,
project development and assistance to operations in compliance and environmental
regulatory issues. Mr Phillips was involved in the $470 million expansion of the world
class Rio Paracatu gold mine and process plant in Brazil for which capacity was
increased from 20 to 60 million tpa.
Page 19 of 26
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
MAJOR SHAREHOLDERS
AVB significant shareholders are listed below.
Fig. 23:
AVB Substantial Shareholders
Glencore
Number of
Shares
203.1m
Blackrock Group
189.4m
11.4%
Appian Natural Resources Fund
185.4m
11.2%
Shareholder
% Issued Capital
12.2%
Source: IRESS
OPTIONS, CONVERTIBLES AND UNPAID CAPITAL
There are 107.5m options at various strike prices and maturity dates. The main
holders of AVB options are management.
Fig. 24:
AVB Options
Expiry
Exercise Price
number of shares
$m unpaid capital
Dec-14
0.15
5.0m
0.75m
Dec-14
0.18
5.0m
0.9m
Dec-15
0.12
85m
10.2m
Dec-15
0.15
12.55m
1.88m
Total
0.13
107.6m
13.7m
Source: IRESS
Page 20 of 26
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
FINANCIALS
ANTAS COPPER PROJECT
Company guidance
AVB is on track to
achieve CY15 copper
production
AVB is currently aiming to achieve first copper production from Antas towards the end
of CY15. The Company is currently finalising debt funding and plans to drawdown the
debt and commence construction in early CY15. The Company has completed
preliminary studies for Antas which found the first 3 years to produce ~12ktpa Cu &
~7kozpa Au at C1 costs of US$0.84/lb with LOM C1 costs of US$1.30/lb.
Hartleys Forecasts
We conservatively
model Antas to begin
copper production in
Q1 CY15
We conservatively model Antas to begin production in Q1 CY15 and after a short ramp
up period producing ~11ktpa Cu & ~9kozpa Au. We model C1 and AIS costs over the
first 2 years of US$1.14/lb and US$1.33/lb for the Antas project. We model LOM C1
and AISC of US$1.22/lb and US$1.70/lb.
We model Pedra Branca to begin production in Q1 CY18 ramping up to 1.5Mtpa over
a 2 year period and producing ~30ktpa Cu & 25kozpa Au at C1 and AISC of
US$1.66/lb and US$2.20/lb.
Capex requirements
We model capital costs of US$40m in FY15 and a further US$46m in FY16. The
Company plans to be at a ‘decision to mine’ Pedra Branca (Stage 2) by the end of
CY15. We expect underground development (~$12mpa) at Pedra Branca to
commence in early CY16. We model capex before production of $80m and $170m
for Antas and Pedra Branca in line with Company guidance.
We model capex of
~$80M and ~$170m
for Antas (Stage 1)
and Pedra Branca
(Stage 2)
Free cash flow
At consensus commodity prices Antas generates free cashflow in the order of $25mpa
and Pedra Branca has the potential to generate free cashflow in the order of $40mpa.
Equity Issuance
In May 2014 the Company raised $23m via the placement of 306.7m shares at 7.5c
per share. The placement saw the Appian Natural Resources Fund become a
substantial holder of AVB.
FX exposure
AVB is currently
finalising a $58m debt
facility
Most costs are in USD and revenue is in USD. We model in USD and convert on a
translation basis into AUD.
Interest Rate exposure
In June 2013 the Company agreed to terms for a $58m debt facility with local bank,
Banco Votorantim and syndicated banks. AVB agreed to up to an eight year term with
an interest rate to be confirmed at the time of execution & drawdown (we expect
execution in CY15).
Commodity price exposure
AVB is exposed to copper and gold prices.
Page 21 of 26
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
VALUATION
Our sum of parts valuation for Antas and Pedra Branca assumes Antas moves in to
production in Q1 CY16 and Pedra Branca in Q1 CY18. We model a 10 year minelife
at Antas and Pedra Branca but see potential upside at both projects. We model a
nominal $50m ($0.02/share) for exploration upside. We believe AVB is well positioned
for brownfield exploration success at both projects and within the regional exploration
projects. We may revisit the exploration value if further exploration success is seen
from the current regional exploration program.
Fig. 25:
Antas and Pedra Branca model assumptions
Antas (Stage 1)
Project
Hartleys sum of parts
valuation for AVB is
A$0.11/share
Capex - Total ($m)
Life of mine Strip Ratio (x)
Life of mine average head grade
Life of mine mill feed (mt pa)
LOM Cu combined recovery & payability
Total Copper eq Sold
Total Copper eq Sold pa
Current Assumed Mine Life (yrs)
Commencement Date (qtr)
LOM avg selling price (USD/copper lb)
LOM avg C1 cash costs (USD/Cu eq lb)
LOM C2 cash costs (USD/Cu eq lb)
LOM C3 cash costs (USD/Cu eq lb)
Life of mine annual net cash flow (US$m pa)
Spot pre-tax NPV (USDm), unfunded
Pedra Branca
(Stage 2) Project
80
170
7.5x
UG
2.7% Cu, 0.5g/t Au 2.2% Cu, 0.5g/t Au
0.45mt pa
1.5mt pa
81%
81%
0.11Mt
0.28Mt
11kt pa
28kt pa
10yrs
10yrs
Mar-15
Mar-18
US$ 3.05 /lb
US$ 2.98 /lb
US$ 1.22 /lb
US$ 1.66 /lb
US$ 1.43 /lb
US$ 1.87 /lb
US$ 1.65 /lb
US$ 2.08 /lb
US$ 25m pa
US$ 42m pa
US$ 102.2m
US$ 75.9m
Source: Hartleys Estimates
For the Antas project we assume eight years of open pit mining with an average LOM
strip ratio of 7.5:1. In years nine and ten we assume underground mining at Antas
North will combine with the low grade stockpiles to produce at a similar production for
as the preceding years. We model Pedra Branca to begin production in Q1 CY18 from
an underground mine at the east deposit (~800ktpa) and ramping up to ~1.5Mtpa as
the west deposit is developed and bought into production from Q1 CY20. Our
modelling for Pedra Branca is pre-scoping although based on a typical bulk tonnage
underground mining scenario with a LOM head grade of ~2.2% Cu & 0.5g/t Au. We
assume the Pedra Branca project produces up to 1.5Mtpa for ~10 years which would
see mining to a depth ~300m. Assuming the mineralisation extends at depth we see
significant potential to extend the minelife at Pedra Branca beyond our modelled
assumptions.
Fig. 26:
Hartleys Sum of Parts Valuation for AVB
100% Pedra Branca (pre-tax NAV @ 14%)
100% Antas North (pre-tax NAV @12%)
Other Exploration
Forwards
Corporate Overheads
Net Cash (Debt)
Tax (NPV future liability)
Options & Other Equity
Hedging
Total
Source: Hartleys Estimates
Page 22 of 26
A$m
A$/share
110.6
95.3
50.0
0.0
-31.2
25.2
-20.2
9.4
0.0
239.2
0.05
0.04
0.02
0.00
-0.01
0.01
-0.01
0.00
0.00
0.11
Hartleys Limited
28 November 2014
Avanco Resources Limited (AVB)
PRICE TARGET
Our price target for AVB assumes both Antas (Stage 1) and Pedra Branca (Stage 2)
move into production over the coming years. We believe Antas (Stage 1) is an
excellent ‘starter’ project though significant upside exists with Pedra Branca (Stage 2).
Both projects combined will see AVB become a mid-tier copper producer with a
relatively large, long life copper mining business. Our price target includes weighting
for the base case at consensus and spot prices and a weighting for the net cash
backing.
Hartleys 12 month
price target is 13
cents per share
Fig. 27:
AVB Price Target Methodology
Weighting
Price Target Methodology
Spot
12 mth out
NPV base case
60%
$0.11
$0.13
NPV at spot commodity and fx prices
30%
$0.14
$0.17
Net cash backing
10%
$0.02
$0.02
Risk weighted composite
12 Months Price Target
$0.11
Shareprice - Last
$0.08
$0.13
12 mth total return (% to 12mth target )
Source: Hartleys Estimates
Page 23 of 26
54%
Hartleys Limited
Avanco Resources Limited (AVB)
28 November 2014
EV/EBITDA BANDS
Fig. 28:
Using Hartleys base case commodity forecasts
Shareprice
.60
AVB Actual
.50
Hartleys Target
8x EV/EBITDA
.40
6x EV/EBITDA
4x EV/EBITDA
.30
2x EV/EBITDA
.20
1x EV/EBITDA
.10
.00
Source: Hartleys Estimates, IRESS
Fig. 29:
Using spot commodity prices
Shareprice
.70
AVB Actual
.60
8x EV/EBITDA
.50
6x EV/EBITDA
.40
4x EV/EBITDA
.30
2x EV/EBITDA
1x EV/EBITDA
.20
.10
.00
Source: Hartleys Estimates, IRESS
Page 24 of 26
Avanco Resources Limited (AVB)
Hartleys Limited
28 November 2014
RECOMMENDATION & RISKS
INVESTMENT THESIS & RECOMMENDATION
We are initiating coverage of AVB with a Speculative Buy recommendation. In our
view the Antas (Stage 1) Copper project is an excellent ‘starter’ project and Pedra
Branca (Stage 2) adds significant value to AVB. Pedra Branca has potential to move
AVB into a mid-tier producer status with a relatively large, long life underground
mining operation. The Carajas mineral province hosts some of the world’s highest
grade IOCG deposits and with the second largest mineral tenure in the region
(behind Vale) the Company is well positioned to continue to find, develop and
operate mines in this world class region.
RISKS
Fig. 30:
Key assumptions and risks for valuation
Assumption
450ktpa Antas (Stage1) &
1.5Mtpa Pedra Branca (Stage
2)
Moderate
Risk to valuation if
assumption is
incorrect
Meaningful
Model parameters
Moderate
Meaningful
We have made a number of large assumptions
in our valuation of AVB, changes in these
assumptions can change our valuation to both
the upside and downside.
Exploration potential
Moderate
Meaningful
We assume exploration upside at both projects
and throughout the region. We believe this
assumption is reasonable given the geological
prospectivity of the world class Carajas
province.
Debt funding
Moderate
High
We assume AVB will finalise debt funding in
early CY15. We believe this assumption is
acceptable although delays to this funding will
affect our valuation.
Conclusion
Risk of not realising
assumption
Comment
AVB is highly leveraged to the success of the
Antas Copper project. We model a 450ktpa
‘starter’ project followed by a 1.5Mtpa project at
Pedra Branca. If either project varies from our
modelled scenarios our valuation will be at risk
to the downside
At this early Stage we have made significant assumptions but believe these are achievable.
Source: Hartleys Research
SIMPLE S.W.O.T. TABLE
Strengths
~10 year low capex/opex Antas ‘starter’ project
Significant upside exists at Pedra Branca
Large cornerstone investors
Strong cash position
Weaknesses
Antas ‘starter’ project lacks significant scale
although will have excess processing capacity
Opportunities
Brownfield discoveries at both projects
Underground potential at Antas
Regional exploration upside throughout the
world class Carajas mineral province
Threats
Debt funding
Copper Price
Source: Hartleys Research
Page 25 of 26
HARTLEYS CORPORATE DIRECTORY
Research
Trent Barnett
Mike Millikan
Scott Williamson
Simon Andrew
Alex Mazzega
Janine Bell
Head of Research
Resources Analyst
Resources Analyst
Energy Analyst
Research Analyst
Research Assistant
+61 8 9268 3052
+61 8 9268 2805
+61 8 9268 3045
+61 8 9268 3020
+61 8 9268 2837
+61 8 9268 2831
Head of Corp Fin.
+61 8 9268 2851
Director –Corp. Fin.
Director–Corp. Fin.
Director–Corp. Fin.
Snr Mgr–Corp. Fin.
Snr Mgr – Corp.Fin.
Snr Mgr- Corp. Fin.
Snr Mgr- Corp. Fin.
+61 8 9268 2824
+61 8 9268 2819
+61 8 9268 2829
+61 8 9268 3055
+61 8 9268 3047
+61 8 9268 3050
+61 8 9268 2821
Corporate Finance
Grey EgertonWarburton
Richard Simpson
Paul Fryer
Dale Bryan
Ben Wale
Ben Crossing
Stephen Kite
Scott Weir
Level 6, 141 St Georges TcePostal Address:
PerthWA 6000
GPO Box 2777
Australia
Perth WA 6001
PH:+61 8 9268 2888
FX: +61 8 9268 2800
www.hartleys.com.au
[email protected]
Note: personal email addresses of company employees are
structured in the following
manner:[email protected]
Hartleys Recommendation Categories
Neutral
Reduce /
Take profits
Sell
No Rating
Speculative
Buy
Carrick Ryan
Justin Stewart
Simon van den Berg
Chris Chong
Digby Gilmour
Jayme Walsh
+61 8 9268 2864
+61 8 9268 3062
+61 8 9268 2867
+61 8 9268 2817
+61 8 9268 2814
+61 8 9268 3053
Wealth Management
Registered Office
Buy
Accumulate
Institutional Sales
Share price appreciation anticipated.
Share price appreciation anticipated but the risk/reward is
not as attractive as a “Buy”. Alternatively, for the share
price to rise it may be contingent on the outcome of an
uncertain or distant event. Analyst will often indicate a
price level at which it may become a “Buy”.
Take no action. Upside & downside risk/reward is evenly
balanced.
It is anticipated to be unlikely that there will be gains over
the investment time horizon but there is a possibility of
some price weakness over that period.
Significant price depreciation anticipated.
No recommendation.
Share price could be volatile. While it is anticipated that,
on a risk/reward basis, an investment is attractive, there
is at least one identifiable risk that has a meaningful
possibility of occurring, which, if it did occur, could lead to
significant share price reduction. Consequently, the
investment is considered high risk.
Nicola Bond
Bradley Booth
Adrian Brant
Nathan Bray
Sven Burrell
Simon Casey
Tony Chien
Tim Cottee
David Cross
Nicholas Draper
John Featherby
Ben Fleay
James Gatti
John Georgiades
John Goodlad
Andrew Gribble
David Hainsworth
Neil Inglis
Murray Jacob
Gavin Lehmann
Shane Lehmann
Steven Loxley
Andrew Macnaughtan
Scott Metcalf
David Michael
Damir Mikulic
Jamie Moullin
Chris Munro
Michael Munro
Ian Parker
Charlie Ransom
Brenton
(CEO) Reynolds
Conlie Salvemini
David Smyth
Greg Soudure
Sonya Soudure
Dirk Vanderstruyf
Samuel Williams
+61 8 9268 2840
+61 8 9268 2873
+61 8 9268 3065
+61 8 9268 2874
+61 8 9268 2847
+61 8 9268 2875
+61 8 9268 2850
+61 8 9268 3064
+61 8 9268 2860
+61 8 9268 2883
+61 8 9268 2811
+61 8 9268 2844
+61 8 9268 3025
+61 8 9268 2887
+61 8 9268 2890
+61 8 9268 2842
+61 8 9268 3040
+61 8 9268 2894
+61 8 9268 2892
+61 8 9268 2895
+61 8 9268 2897
+61 8 9268 2857
+61 8 9268 2898
+61 8 9268 2807
+61 8 9268 2835
+61 8 9268 3027
+61 8 9268 2856
+61 8 9268 2858
+61 8 9268 2820
+61 8 9268 2810
+61 8 9268 2868
+61 8 9268 2866
+61 8 9268 2833
+61 8 9268 2839
+61 8 9268 2834
+61 8 9268 2865
+61 8 9268 2855
+61 8 9268 3041
Disclaimer/Disclosure
The author of this publication, Hartleys Limited ABN 33 104 195 057 (“Hartleys”), its Directors and their Associates from time to time may hold
shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those securities.
Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising from any advice
mentioned in publications to clients.
This report was prepared solely by Hartleys Limited. ASX did not prepare any part of the report and has not contributed in any way to its content.
The role of ASX in relation to the preparation of the research reports is limited to funding their preparation, by Hartleys Limited, in accordance with
the ASX Equity Research Scheme.
ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of ASX. To the
maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is
accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the research reports.
Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting
your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.
Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued.
Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in
negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law.
Page 26 of 26