Longlife European porphyry project, 10Moz DFS Q1 2021.
Mine builder in the emerging West Tethyan District
With a multi-millennia mining history, the West Tethyan belt has enjoyed a resurgence as investors and majors are drawn in by the region’s geological upside, skilled but cheap workforces, and world class infrastructure. Euro Sun is developing the Rovina Valley Gold Project (RV) in Romania with a 28km2 property with three porphyry deposits containing a total of 10.1Moz of M&I ounces (AuEq). The company is finalizing a feasibility study by Q1 2021 targeting a 130kozpa producer with first production estimate.
Straightforward low strip porphyry benefitting from infrastructure
ESM has the key traits of successful porphyry mines: low costs and good
metallurgy. Advantages include cheap grid power at 7.4c/kWh; low strip ratio at 1.9x LOM; simple geology; mining (open pit), and metallurgy (flotation to produce a Cu-Au concentrate); and a skilled local labour force that does not require FIFO expats. These result in SCPe unit costs of US$16.5/t (0.27g/t AuEq) of ore, delivering strong margins on a grade of 0.67g/t AuEq.
Initiate coverage with BUY rating and C$1.05/sh price target for 2021 .
The 2019 PEA provides a starting point, outlining a 20ktpd (7.2Mtpa) open pit to flotation operation producing 108koz Au and 6kt Cu per year (130koz AuEq) based on exploitation of just the Colnic deposit. Excellent logistics drive US$340m initial capex, with AISC of US$878/oz AuEq (co-product). We model a similar scenario per the PEA for Colnic, increase unit costs and sustaining capex by 20%, and add in the Rovina deposit, which management has guided will be incorporated into the feasibility study. We have assumed 60% debt and equity funded at 0.2x NAV. We apply a 0.75x multiple to this and US$50/oz for
resources outside our mining inventory to reflect ounce upside. As such, we initiate with a BUY rating and C$1.05/sh. On our estimates, ESM is currently trading at 0.1x unfunded NAVPS or 0.3x SCPe fully-funded NAVPS.
Delivery of Colnic alone could deliver a double on FF NAVPS
We estimate that ESM is trading at just 0.5x fully funded NAVPS on a Colniconly scenario, even with our conservative unit cost (increased by 20% over PEA) and sustaining capex (increased to US$86m from US$12m) estimates. We estimate an NPV5%-$1850/oz-$3.00/lb of US$348m and IRR of 19%. Rovina and Ciresata could double NAV on conservative conversion
Majors favour porphyries for good reasons: They tend to offer long asset livesthat deliver a robust return profile and multi-cycle exposure, shifting emphasisto execution, rather than cycle timing.
In Rovina Valley’s case, the Rovina and Ciresata deposits offer this LT optionality. Adding 50Mt from Rovina (30Mt
containing 463koz Au and 102kt Cu) increases our NPV estimate by US$211m (US$0.30/sh FF) and IRR to 23%. Incorporating Ciresata (58Mt for 1.9Moz Au and 104kt Cu) in a bulk stoping operating increases NPV by US$279m, or C$0.43/sh to C$1.66/sh, IRR to 27%, and mine life to 24 years in total. Euro Sun Mining (ESM CN)
(CEO SHAREHOLDER 2,6 Million Dollars)
Shares (basic, FD) 169 / 177
52-week high/low 1.40 / 0.37
Market cap ( $m) 59
Net cash (debt) (U $m) 15
1.0xNAV5% @ US$1850/oz (U $m) 488
1.0xNAV5% FD (C$/sh) C$3.70
1.0xNAV5% FD + FF (C$/sh) C$1.03
P/NAV (x) 0.09x
Average daily value ( $k, 3M) 192.1
FINANCIALS CY24E CY25E CY26E
Gold produced (000oz AuEq) 109 161 152
Revenue (U $m) 199 296 277
AISC (US$/oz AuEq) 796 763 912
Income (U $m) 35.5 68.8 49.5
EPS (C$/sh) 0.21 0.41 0.29
PER (x) 1.7x 0.9x 1.2x
CFPS (C$/sh) 0.11 0.20 0.16
P/CF (x) 1.1x 0.6x 0.8x
EBITDA (U $m) 89.5 138.5 100.3
EV/EBITDA (x) 3.0x 1.3x 1.2x
SPROTT VALUATION 1Q20E 1Q21E 1Q22E
1xNAV5% FD (C$/sh) 1.05 1.55 1.12
ROI to 1xNAV (% pa) 0% 344% 79%
1.2xNAV5% FD (C$/sh) 1.26 1.86 1.34
ROI to 1.2xNAV (% pa) 0% 433% 96%
SOTP 1xNAV5% US$1850/oz U $m C$/sh
Rovina Valley NPV 3Q20 548 4.14
Central SG&A & fin costs 3Q20 (157.1) (1.19)
Exploration 82.4 0.62
Net cash 1Q20 14.6 0.11
TOTAL 488 3.68
Cash raised 166
Source: S&P Capital IQ