Millennium Minerals: RM Research places Buy, $0.08 price target

Millennium Minerals (ASX: MOY) has received a Speculative Buy from RM Research with a 12 month price target of $0.08 per share.

Company data

Share Price (A$): 0.022
Fully Paid Ordinary Shares (A$b): 1.49
Options (ex $0.075, exp 28/2/13): (m) 67.6 million
Options (ex $0.29, exp 19/12/11): (m) 1.7 million
Market Capitalisation (Undil): $32.8 million
Approx Cash : $16.5 million

Millennium draws step closer to Nullagine Gold Project production...gold price firms

Investment Highlights

The second half of 2011 has been productive for Millennium Minerals with a successful one for one A$23 million underwritten rights issue (March 2011), joint ventures with Gallard Resources and Creasy Group of Companies together with further encouraging drill results from the All Nations, Bartons, Shearers, Otways and Golden Eagle prospects at the Company’s flagship Nullagaine Gold Project.

Together with A$16.5 million in cash, an A$35 million syndicated debt facility and a A$10 million lease facility, Millennium Minerals requires a further A$25 million in equity to enable project construction to commence. Permitting is already underway.

Proven and Probable Reserves (0.50 g/t gold cut-off) stand at 10.45Mt @ 1.7 g/t containing 567,800 ounces of gold from Measured and Indicated Resources of 34.4Mt @ 1.13 g/t for 1.3 M ozs of gold.
Importantly a total of 28.1Mt @ 1.15 g/t for 1.03M ozs is in the Measured and Indicated category. We anticipate substantial resource upgrades in the near term.

Results from infill and step out drilling (4/5/2011, 6/62011) has successfully intercepted ore grade mineralisation and extended mineralisation both along strike and down dip at Golden Eagle.

Mineralisation has been extended a further 275 metres to the south-west with much of the mineralisation likely to fall within the extended pit design. 5,100 metres of RAB and 1,500 of RC drilling are planned.

Infill and step out drilling at Bartons and All Nations also confirmed that mineralisation remains open to the southeast, northeast and at depth. Shallow oxide mineralisation indicates potential for further resource upgrades to the north.

2,000 metres of RC drilling is planned at Shearers with potential for pit extensions.

At Otways ore grade intercepts also extended mineralisation a further 200 metres to the north and 100 metres southwest. A further 2,000 metres of RC drilling is planned in the near term.

The project represents a seven year, 1.50M tpa Carbon-In-Leach operation recovering 504,000 oz of gold at a C1 + C2 cash cost of A$750/oz (industry average A$687/oz) and a CAPEX of A$79M. Stripping ratios are favourable
(3.71:1) from relatively shallow pits.

Based on our lower case scenario of A$1,411 per ounce (spot price A$1,646), RM Research estimate an Internal Rate of Return of 60% and a LOM EBIT of A$246M and an NPV (10%) of A$91M.

At A$1,646, NPV climbs to A$200m or 8.0 cps. Each year of mine life extension, based on similar current grade, tonnage and operating cost parameters, is likely to add in the range of A$20M to A$25M in net cash flow per annum.

RM Research anticipates that the proposed plant will become a preferred treatment option for existing and future gold resources in a 40-50km radius.

Management and directors have a wealth of mining experience including chairman Peter Rowe (Chemical Engineer) and metallurgist and CEO Brian Rear with over 35 years experience in development.

The company remains in a strong position and requires a further A$25 million in equity to commence project construction.

The robust gold price and recent exploration successes together with the JV on tenements to the SW Golden Eagle bode well for further pit extensions and resource upgrades. 12 month target has been increased to 8 cps (5cps).

CONCLUSION

Despite a choppy year on the ASX, RM Research believes that Millennium Minerals remains in an excellent position on the back of its existing finance facilities and successful A$23 million rights issue completed earlier this year.

We are optimistic, once market conditions stabilise, that the Company will be able to secure the remaining A$25 million in equity required to commence construction. While the project is relatively small by International standards, the base case scenario delivers an EBIT of A$246 million over 8 years with a payback of around 35 months.

Based on recent increase in the gold price, project economics have been significantly enhanced. At A$1,646 spot gold, NPV jumps to A$200m or 8.0 cps!

Further encouragement in the June Quarter has been the exploration success at All Nations, Bartons, Shearers, Otways and Golden Eagle together with the joint Venture with the Creasy Group of Companies – all positive for further extensions to the existing pit designs and a substantial resource upgrade in the September Quarter.

As production draws closer, we anticipate additional interest from third party resources in the district which will supplement existing production from the Company.

The medium grade is a significant risk and the project remains highly sensitive to fluctuations in gold grades and exchange rates. Again, financing remains the next risk however the fairly robust economics together with the relatively low capital requirements should not present any
major impediments.

RM Research rates the company as a Speculative Buy.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/18651/millennium-minerals-rm-research-places-buy-008-price-target-18651.html