Manas Resources: Foyil Securities places "BUY" recommendation

Eastern European stock broker Foyil Securities has written a research report on Manas Resources (ASX: MSR), placing a "BUY" recommendation on the stock.

Company data

Shares outstanding (m) 177.4
Current price (AUD) 0.185
Market Cap (AUD m) 32.82


Golden opportunity

With the price of gold off the record levels at but still trading at USD 1,730 per ounce or 20% higher YTD, we have been investigating companies in our region, which can be defined as the Former Soviet Union (FSU), that are either producing or are very close to producing gold from mining activities.

Key areas we have focused on are location, resource outlined to date and average operating cost per ounce.

We are pleased to present clients of Foyil Securities with background on Australian quoted Manas Resources (MSR AU) who are on the verge of producing gold from their 100% owned projects in the Kyrgyz Republic with a production cost that will make them one of the lowest cost gold miners in the world right at the time when gold is still viewed as a viable and safe investment in the time of global economic turmoil.

Key drivers

- Mining approvals on the horizon.
On 21st June MSR reported via an ASX release that they have submitted the TEO report (Technical and Economic Justification Study) to the Kyrgyz Ministry of Natural Resources for review.

The Kyrgyz Republic has made a major effort to attract FDI from international mining companies to develop the gold mining sector in the country.

MSR has full support from the local community and has worked where ever possible with local engineering companies to progress the projects. Approval of the TEO will immediately allow MSR to apply for a
mining license.

The Kyrgyz Republic boasts corporate tax of only 10% and gold production royalties and minor taxes that will be a maximum of 5.5% further adding to the financial strength of the project from a reporting perspective.

- 1.13 million ounces of gold resources which are compliant with the JORC code.
MSR currently has underway a 20,000 m drilling program across all active exploration sites of which 12,500 m has been completed and 5,000 m reported.

The two main target areas to date, Shambesai and Obdilla, give MSR 1.13m ounces of in-ground gold resources based on activities since 2008. MSR continues to drill prospective sites within its 4,400 km2 landholding and in Q2 drilled the first hole at a new site called Pum that lies just 3 km from the main Shambesai zone.

Drilling outside the existing resource boundaries at other prospects has produced an encouraging result, which will require further drilling and analysis but could become a third mine site within the landholding.

With an initial first-stage mine plan producing annual output of 35,000 ounces of gold for 5.5 years, the current resources offer the opportunity for significant expansion both in terms of gold output and mine life.

The next resource update for Shambesai – in which a significant expansion is expected – is due by the end of September.

- Strong balance sheet. On 10th December 2010 MSR announced a capital raising of AUD 11.5m.

This offer was heavily oversubscribed and MSR issued 57.5mn shares at an AUD 0.20 share price. This was notable for being above the prevailing market price of AUD 0.19 at the time.

At 30 June 2011 the company had cash reserves of AUD 8.8 million with 177 million shares, 60 million listed options and 15 million unlisted options on issue.

Cash burn for the current quarter is estimated at AUD 2.65m as the exploration program concludes, which will leave MSR with AUD 6.18m in cash on the balance sheet as the quarter ends, plus a further AUD 12m subject to the exercise of the 60m quoted options at AUD 0.2 exercise price , which expire September 30, 2011.

- Production to start in 2012. MSR plans to start production at the end of 2012.
The production site will be located in the Shambesai valley. CapEx necessary to launch production is estimated at AUD 16.3m, which will be spent on the construction of a Vat and Heap Leach Plant the construction of which will commence upon the company’s receiving government approval.
Money necessary for building the plant will be received either by converting 60m options provided the stock price reached AUD 0.2 per share in September, through issue of further equity or will be borrowed.

Valuation

The purpose of this report is to inform Foyil Securities’ clients of the opportunity in the region. A Scoping Study released on 16 November 2010 showed a pre-tax cash flow of USD 118M at a USD 1,000 gold price for mining mainly the 180,000 ounce high-grade oxide portion of Shambesai only.

Significant upside exists in the remaining resource at Shambesai and the 485,000 ounce Obdilla resource only 7km away.

At this point, our Buy rating of the stock is based on the expected announcement of resource upgrade in September, which will raise the company’s reserves from the current 1.13m ounces and the release of a Feasibility Study later in the year which will place a value on the cash flows to the Company as it enters production.

With a current gold price of USD 1,830 per ounce and past economic figures run at USD 1,000, there is significant potential for a substantial increase in value both on the first-stage oxide operation, future underground and sulphide operations, and on the increase of current in-ground resources.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/19144/manas-resources-foyil-securities-places-buy-recommendation--19144.html