Polymetals obtains uplift from higher equity interest in Drew Hill project

Polymetals Mining (ASX: PLY) has reached an agreement with joint venture partner Exco Resources (ASX: EXS) to lift its stake in the Drew Hill Project to 50% for both mining and exploration joint ventures.

Drew Hill is located in South Australia, and comprises the White Dam Mine (Hannaford Pit), the Vertigo Project and the Drew Hill exploration tenements.

Polymetals is also able to increase its interest in Drew Hill infrastructure, including plant and camp facilities, to 50% from 25%.

The agreement includes the transfer of 25% of Exco’s equity to Polymetals, with a commitment from Polymetals to spend $1.3 million on exploration on the Drew Hill tenements before June 30, 2012.

Production from the current producing Hannaford pit will continue to be split 25:75 between Polymetals and Exco, however production from Vertigo and any other deposits developed will be shared 50:50.

The transaction is yet to be formalised.

The strengthened position in Drew Hill will enable the company to leverage its established production presence in the Curnamona mineral province.

Vertigo project
Mining at the Vertigo Project is due to begin this month, and will extend production operations at Drew Hill to June 2012.

Processing will be primarily done using existing infrastructure, keeping capital expenditure low.

Drew Hill
The Drew Hill exploration program is focused on extending the life of operations through regional historical workings and targets that have been underexplored.

The tenements cover 728 square kilometres.

To date, the Drew Hill Project has produced more than 120,000 ounces of gold from the White Dam Mine, which is operated and managed by Polymetals.

Strong cash position
Polymetals has about $21.0 million cash in the bank with no debt. Cash reserves increased by $2.5 million during the September quarter as production from the White Dam Gold Project continued to fund the company’s corporate overheads and build cash reserves.

Polymetals also banked a further $2.5 million from the sale of its Boorara Project to MacPhersons Reward Gold (ASX: MRP).

Analysis
The company is developing a reputation for fast, low cost development, bringing White Dam from start of construction to first gold production in just 31 weeks.

White Dam has been in production since April 2010. Total production for the 2011 financial year was 87,400 ounces, which was 30% better than expected. A further 19,400 ounces was produced to the end of October.

To put the cash return into perspective, Polymetals' cash costs were $450 per ounce and the average gold price received was $1,280 per ounce. That’s a return of almost three times is cash costs.

Polymetals is fast tracking the Mt Boppy Gold Mine into production and has moved a step closer today to the recommencement of mining operations with the lodgement of the Development Application and Environmental Impact Statement with the New South Wales Government.

The company is in the process of completing a Feasibility Study, which is scheduled to be finalised in early 2012.

In 2011, Polymetals returned:

- EBITDA of $15.9m

- Net profit after tax of $8.4m

- Net cash flow of $13.5m

With a market capitalisation of $25 million and cash of $21 million (at Nov 2011) this provides an EV of just $4m for the company. This indicates Polymetals is significantly undervalued.

Originally published at: http://www.proactiveinvestors.com.au/companies/news/23985/polymetals-obtains-uplift-from-higher-equity-interest-in-drew-hill-project-23985.html