Tuesday, 3 September 2013

A renaissance for Mawson West as copper miner makes great strides

These are exciting times for Mawson West (TSE:MWE) (OTC:MWSWF).
With one producing copper mine on the verge of going underground and one close to construction, the Australian-based copper producer is experiencing a renaissance that makes it almost unrecognizable from the company that had “missed a few targets” and was “a little bit broken,” in the words of mining veteran Bruce McFadzean, brought on board as managing director and CEO less than a year ago.
McFadzean, who has spent his professional life with such marquee names as BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO) (LON:RIO) across a range of commodities from iron ore, gold, silver, diamonds, nickel, and copper, boasts a list of achievements that is perhaps crowned by his term as managing director of Evolution Mining Limited, the post he held immediately prior to joining Mawson West. Under his stewardship, McFadzean grew Evolution’s predecessor Catalpa Resources from a market cap of A$10 million in 2008, to an A$1.2 billion company in 2011 with five gold projects in Queensland and Western Australia, following the merger between Catalpa and Conquest.
It was the opportunity he saw in Mawson West that drew McFadzean, who took up the position with the Democratic Republic of Congo (DRC)-focused miner in October of last year. As he puts it: “Entrepreneurially, the previous Mawson West management and board [had] done a fantastic job in getting a great asset that I can now work with.”
During his tenure, McFadzean has added key personnel, completed the ramp up of Dikulushi, the company’s principal site, and “marched the company forward to be where [it is].”
And where Mawson West finds itself is as a reinvigorated company that has “met its production target for the last 5 months” and “moved its cash position to nearly $39 million at the close of the second quarter 2013.”
Indeed, Mawson West has consistently been meeting its production targets since the beginning of 2013, with the start-up of the Dikulushi cutback.
For the three months ending June 30, the company reported production of 5,189 tonnes of copper from the Dikulushi mine, a figure in line with the guidance of 5,200 tonnes. The same mine recorded output of 475,397 ounces of silver. Results from the same quarter saw the company’s loans and borrowings reduced by $8.9 million.  Outstanding debt is $22.8 million, with the company reporting roughly US$39 million of cash on hand as at June 30, a tremendous advance on its financial situation.   As recently as March of this year, the miner reported a cash position of $27.1 million and debt of $30 million. 
Positive reinforcement from industry observers was not long in coming, with the company getting a mark of approval from Clarus Securities in the wake of the production figures. The institutional investment dealer reiterated its “buy” rating and awarded the miner a share price target of $2.15, up from the 43 cents at which the stock was trading at the time.
That recommendation was echoed by Cormark Securities, which also published a note on the miner, reiterating its ranking of the company as a “top pick” and positing a target price of $1.75 for the stock.
In the Cormark note, analyst Cliff Hale-Sanders singled out for mention “an impressive achievement – free cash flow during the quarter was equal to one-third of the company’s market capitalization, which highlights the extreme undervaluation of the shares.”
This is exactly the path McFadzean sees the company continuing down for the foreseeable future.
 “We’ve had some solid quarters and we don’t see any reason why we can’t have two equally solid quarters to close out the fiscal year to continually grow our reputation.”
While a growing reputation is very much front of mind, the new incarnation of Mawson West, McFadzean emphasizes, is not going to take the tack of “growth for growth’s sake,” when it comes to assets.
“We want to grow so we can add value to our shareholders, we’re not going to go out and seek assets because we want to be a growing company,” he says. “They’ve got to be good assets.”
Also notable is the fact that Mawson West is among the lowest cost producers around, with production costs of US$0.55 per pound of copper equivalent (net of silver credits) for the first half of 2013.
 “We’re one of the lowest cost producers in the world at the moment and we’d like to keep that as a building block for the future.”
Plans for the future include extending the Dikulushi site’s reserve by way of underground operations, a task made considerably easier by the fact that the site’s previous owner had spent a great deal on underground infrastructure, meaning “we were fortunate enough to be able to utilize that infrastructure and carry that on with minimal capital expenditure,” says McFadzean.
Indeed, continuing the generation of cash from the open pit operations while simultaneously ramping up the underground operations and thus extending the life of the Dikulushi site, is the first of a two-stage approach McFadzean has in mind. 
And the second stage is to complete the construction and commissioning of the Kapulo project, also on the company’s tenement package, a project that McFadzean says is scheduled for commissioning in the first quarter of next year and is capable of producing approximately 20,000 tonnes of copper a year.  “We’ve taken a constrained expenditure approach to the project and we are assembling the plans to maintain a healthy cash balance while we do that.”
The DRC itself is already one of the world’s largest copper producers, with the territory attracting such names as Glencore International (LON:GLEN), FMGC, Lundin Mining (TSE:LUN), and Tiger Resources (TSE:TGS), but McFadzean has ambitions that stretch beyond those borders.
“By the middle of next year, we’d expect to be into commercial production from Kapulo, and we would look at growing our production from the current 20,000 to 22,000 tonnes of copper and towards 30,000 tonnes of copper. 
“And it’s at that point that our cash position will allow us to really have a look at what other opportunities exist, both within our tenement package and also outside of DRC to perhaps diversify a little.”

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