Hard Rock--Eric Coffin update
I spoke with IR this morning. they said lots of interest coming in from all over. Mann's presentation at Metals Forum was mostly about the exceptional exploration potential.
This trading seems to be a replay of the time period after the permit news release. I think some people are selling part of their positions since they may have had good gains in the last 6 weeks, but the shares are moving to stronger hands. The share price may well follow the earlier pattern and move up from this base.
31 MAY 2015 A COMPELLING PEA FROM LION ONE Lion One Metals
(LIO-V, LOMLF-Qx, LLO-ASX; closed off 0.02 on 48k shares at $0.48 on V) gave attendees at yesterday’s Metals Investor Forum a bit of a bonus during their presentation, a first look at the PEA numbers for the Tuvatu project.
The highlight numbers from the study appear in the table below and they are indeed impressive. After tax, Tuvatu reports a US$86.5 million NPV and IRR of 52% from the production of 353,000 ounces over its 7.4 year project life which includes 1.3 years of development and construction, using a $1200/oz gold price and 5% discount rate. The payback period is a very impressive 1.5 years on an after tax basis.
Cash cost and all-in sustaining costs of $567 and $779 respectively are quite low, as is the estimated pre-production capex of US$48.6 million. The key to this PEA is grade. Lion One management developed a mine plan that focuses on the highest grade areas which results in an average diluted head grade of 11.3 g/t gold. Many of the best ore shoots are mined early and LIO expects to produce over 262k ounces in the first three full years of production.
The MIF presentation was handled by Stephen Mann, Lion One’s Managing Director. He spent a large portion of the presentation talking about exploration potential, both immediately surrounding the planned mining areas as well as the broader potential of the mining lease and surrounding exploration licence. That may seem odd in a presentation being used to announce PEA figures but it made a lot of sense. LIO is taking a classic old school approach to the development and mining of a high grade underground resource, following a well-trod path many successful mines before Tuvatu have utilized. The idea is to get Tuvatu into production as expeditiously and cost effectively as possible then use cash flows to continue development and exploration drilling to extend and expand the resource. Traders are used to seeing companies spend a lot of money to maximize the size of a resource then try to maximize the production scale. That makes sense in a bull market when it’s easy to line up money for capital intensive projects but that is not the market we are in.
A key attribute of projects that have recently succeeded in HRA Special Delivery #586 31 May, 2015 2 getting financed to development is capital efficiency and scalability. As LIO develops new ramps and levels it will put in drill stations that will be able to upgrade Inferred resources and test along strike and especially to depth more efficiently. There are a number of high grade intercepts on main veins up to 100 metres below the resource. Several of the main lodes have been intermittently traced with surface trenches for a kilometre or more in both strike directions away from the roughly 500 metre section that represents most of the Indicated and Inferred tonnage. If management can keep upgrading ounces and adding accessible high grade shoots we should see it in the mine plan as production proceeds.
Key goals will be to increase production in years 4 to 7 then adding years to the production life. Given how much untested target there is I think the odds they can accomplish this are good.
Mining will be carried out with shrinkage stoping that should mean less dilution. It’s an exacting way to mine but there are a lot of miners in the area with experience with this mining method from their time working at Vatukoula. There is also room to increase production with better gold recoveries. Recent testing has reported recoveries in the 90-95% range. The PEA uses early recovery averages of 86.3%. Adding 4-5% to the recoveries would make a big difference in returns.
Management is talking to finance groups. The successful track record of management will help here, as will the fact that management owns a third of the stock. There are a number of other large shareholders who seem to be willing to wait to see Tuvatu get built. I’ve been impressed at how well LIO has held its price. Much of the float seems well owned and there is no cheap stock. Add management’s ability to promote and I think LIO will continue to trade higher.
The potential for a short timeline to production and high IRR should attract a relatively high value per ounce. Lion One is a buy at these levels based on this strong economic study and potential for near term development.
Regards for Now: Eric Coffin HRA - Special Delivery is an independent publication produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-base expansion. . This document may be quoted, in context, provided proper credit is given.
