gold water

Sales policy disguises extent of improvements

Auriant Mining 14 September 2021 Update

Auriant Mining

Sales policy disguises extent of improvements

Q221 results

Metals & mining

14 September 2021

Price

SEK3.84

Market cap

SEK379m

RUB72.6537/US$; SEK8.5570/US$

Net debt (US$m) at end-June

(includes lease liabilities)

61.9

Shares in issue

98,768k

Free float

25.89%

Code

AUR

Primary exchange

Nasdaq First North Premier

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.5)

(19.0)

(41.9)

Rel (local)

(6.9)

(23.1)

(57.8)

52-week high/low

SEK6.64

SEK3.80

Business description

Auriant Mining is a Swedish junior gold mining company focused on Russia. The company has two producing mines (Tardan in Tyva and Solcocon in Zabaikalsky), one advanced exploration property (Kara-Beldyr in Tyva) and one early-stage exploration property (Uzhunzhul in Khakassia).

Next events

Q321 results

29 November 2021

Q421 results

28 February 2022

Q122 results

May 2022

Analyst

Charles Gibson

+44 (0)20 3077 5724

Auriant Mining is a research client of Edison Investment Research Limited

Auriant’s Q221 financial results were released in the context of known operational data that had already demonstrated material outperformance relative to Edison’s prior expectations. The mill at Tardan, in particular, operated above nameplate capacity during the three-month period to result in the production of 7,606oz gold (13.7% above our prior forecast). At first glance, Auriant’s commendable operating performance failed to translate into its financial results. However, this was only on account of a 13.6% (1,072oz) under-sale of gold relative to production, which was consistent with the company’s new policy of selling gold on an ‘as needed’ basis. In the absence of this factor, we estimate that Auriant’s results would have been 3% above our prior forecast at the pre-tax level.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/19

29.8

(2.2)

(1.3)

0.0

N/A

N/A

12/20

53.4

16.6

13.7

0.0

3.3

N/A

12/21e

50.4

12.4

10.3

0.0

4.4

N/A

12/22e

55.6

22.5

11.7

0.0

3.8

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Net debt repayments accelerating

As in Q121, the under-sale of gold relative to production (now that high cost debt has been fully repaid – see ‘Financials’ section on page 8) resulted in net debt declining by less than it otherwise would have done. In this case, net debt fell by $3.9m during the quarter (cf $1.5m in Q121), to $60.3m (excluding lease liabilities), but we estimate it would have fallen by $5.8m ($23.2m on an annualised basis) if all the gold produced during the quarter had been sold and by $9.8m if all the gold held in inventory had also been sold (Edison estimates).

Valuation: More than 3x the current share price

We have adjusted our forecasts for FY21 to reflect the short-term decline in the gold price from $1,870/oz at the time of our last note to $1,798/oz currently (-3.9%). On the basis that management executes the Kara-Beldyr project according to the operational and financial parameters expected and with production from FY25 (note: this is a risk already substantially mitigated by management’s success in developing the Tardan CIL project), we estimate that Auriant is capable of generating average annual cash flows of $63.5m, average earnings of $54.9m and average EPS of $0.39 from FY25–34. This would allow it to pay (average) maximum potential dividends of 44.0c/share in FY26–34. Discounted at our customary 10% rate, the value of such a stream of dividends to shareholders has declined by 7.6% to $1.59/share (cf $1.72/share previously) – predominantly on account of the recent weakness in Auriant’s share price (thereby increasing future assumed dilution) – but has held relatively constant in Swedish krona terms, at SEK13.61/share (cf SEK14.33/share previously), on account of the recent relative strength in the value of the US dollar. Even so, we estimate that this value of $1.59/share will increase by 61.0% to $2.56/share in FY26 on the cusp of the company’s maiden dividend.

Q221 results analysis

Auriant’s Q221 financial results were reported in the context of known production of 236.6kg from Tardan for the quarter (compared with our prior estimate of 208.0kg) and a largely known gold price. After a short maintenance stop in Q121, Q221 operational results were characterised by material outperformance relative to our prior expectations, as shown in the table below:

Exhibit 1: Tardan CIL plant performance, Q120–Q221

Q120

Q220

Q320

Q420

Q121

Q221e

Q221a

Change*
(%)

Variance**
(%)

H121

Ore processed (kt)

100

96

95

103

96

95

111

+15.6

+16.8

207

Grade (g/t)

3.04

2.69

2.58

2.35

2.04

2.38

2.41

+18.1

+1.3

2.24

Gold in ore processed (kg)

303

258

245

239

196

226

267

+36.2

+18.1

463

Gold in ore processed (oz)

9,742

8,295

7,880

7,685

6,296

7,269

8,583

+36.3

+18.1

14,879

Gold produced CIL (kg)

278

243

229

203

210

208

237

+12.8

+13.8

447

Gold produced CIL (oz)

8,946

7,804

7,363

6,517

6,743

6,688

7,606

+12.8

+13.7

14,349

Gold sold (kg)

317

220

224

185

180

214

212

+17.8

-0.9

392

Gold sold (oz)

10,193

7,056

7,193

5,945

5,787

6,881

6,811

+17.7

-1.0

12,598

Source: Auriant, Edison Investment Research. Note: *Q221 versus Q121. **Q221a versus Q221e.

Of note were the following:

Ore mined of 133kt during the quarter was at its highest level since Q419; at the same time, the volume of waste mined remained at high levels similar to Q121 as operations focused on stripping ore Zone 3 within the Tardan licence area ahead of mining in FY22.

The plant processed 111kt of ore during the quarter, which represented a record quarterly throughput rate since the start of production in late Q419 and was above the plant’s nameplate capacity of 50tph. Note that, on average, Auriant is budgeting a throughput rate of 87.5–95.0kt per quarter at the Tardan plant in FY21 to produce an average 217.5–225.0kg gold per quarter, implying a yield of 2.29–2.57g/t and a likely head grade in the range 2.49–2.79g/t.

The grade of ore processed increased by 18.1% for the quarter to 2.41g/t, which represented the first quarter-on-quarter increase in processed grade since the CIL plant entered production in Q419 and which compared with a mined grade of 2.25g/t – implying that a portion of the processed ore was derived from higher-grade stockpiles and broadly corroborating an increase in the remaining stockpile at Tardan of 19kt at an average grade of 1.51g/t since end-Q121. In contrast to Q220 however (when its stockpile was exhausted), the performance of mining and processing operations at Tardan in Q221 has now allowed for the development of an ore stockpile (which should increase in Q3 and Q4) and will allow for greater operational flexibility in future with respect to material to be processed.

Management reported a metallurgical recovery of 92.9% in H121, which compared with 92.5% in Q121, implying a slightly higher level of metallurgical recovery in Q221 compared to Q121 as well as being above Edison’s prior estimate of 92.0%, which itself exceeded management’s targeted recovery rate of 90%.

For the fifth quarter in succession, Auriant sold less gold than it produced – in this case, by 33.2kg, or 1,072oz (Edison estimate). This is consistent with its new sales policy of selling gold on an ‘as needed’ basis now that it has repaid all of its high-cost debt (cf maximising gold sales previously). However, we estimate that it was also responsible for depressing revenue by c $1.94m and associated costs by c $1.30m and hence operating profit (and, to all intents and purposes, pre-tax profit) by c $0.64m. Note that this sales result followed a comparable c 29.7kg (955oz) under-sale of gold in Q121, a 23.9kg (768oz) under-sale of gold in Q420, a 10.5kg (341oz) under-sale of gold in Q320 and a 23kg (748oz) under-sale in Q220. As a consequence, Auriant/Tardan has 101.4kg (3,260oz) of unsold gold included in ‘finished products’ inventory at end-Q221 (worth c $5.86m at the current gold price of $1,798/oz) compared to 86.7kg (2,787oz) at end-Q121. Note that Auriant’s ‘finished products’ inventory is held on its balance sheet at $3.0m, being the lower of cost and net realisable value, implying an average cost of production $934/oz (which reconciles closely with its Q221 cost of sales of $1,050/oz sold, including depreciation). Note that, in total, ‘work in progress’ and ‘finished products’ stocks on Auriant’s Q221 balance sheet have remained almost unchanged at $5,684k (cf $5,757k at end-Q121 and $5,754k at end-Q420), but that the nature of the stocks has substantially changed from the majority being ‘work in progress’ at end-Q420 to the majority being ‘finished products’ at end-Q121. Note: one of the consequences of this policy is that, by holding liquid assets in the form of bullion/specie, it increases Auriant’s overall exposure to the gold price as it removes an otherwise de facto hedge on the company’s balance sheet in the form of fiat currency cash holdings.

Cash expenses increased by c 10%, or $1m, in H121 cf H120 and the average cash cost per ounce produced at Tardan by 22.2% from $577/oz to $705/oz, driven by higher volumes of stripping and exploratory drilling, lower average grade (given that the CIL plant was producing from high-grade stockpiles in H120), the indexation of salaries and wages and a short, scheduled plant maintenance shutdown in Q121. However, this was no more than was expected in the company’s production plan. In addition, it benefited from a c 7% devaluation of the Russian rouble cf H120, which reduced the US dollar value of its rouble-denominated costs. Quarter-on-quarter, however, we estimate that Tardan’s cost of sales amounted to $50.80/t processed, which was 2.5% higher than the $49.57/t recorded in Q121 but 10.7% lower than our prior estimate of $56.88/t and also the $59.28/t achieved in Q120, notwithstanding the continued higher level of waste stripping. This unit cost result translated into an estimated cost of production (excluding depreciation) of $774/oz in Q221, which was similarly below our prior forecast of $822/oz.

Exhibit 2 summarises Auriant’s Q221 results in the context of the prior quarter’s results and also our previous expectations. Relative to our prior expectations, the largest variances in Q2 results were a negative $0.2m variance in revenues (largely on account of the under-sale of gold relative to production noted above), a negative $0.4m variance in costs (largely on account of the higher level of tonnes processed, albeit at a lower unit cost), a negative $0.3m variance in depreciation and a negative $0.3m variance in the tax charge partially offset by a $0.2m positive variance in the general and administrative charge. Had all of Auriant’s gold produced during the quarter been sold however, we estimate that its pre-tax profit would have slightly exceeded our prior estimate at $3.4m ($2.76m + $0.64m) compared to $2.8m (actual, below) and $3.3m (prior estimate, below):

Exhibit 2: Auriant results, Q419–Q221, by quarter ($000s*)

Q419

Q120

Q220

Q320

Q420

Q121

Q221e

Q221a

Change
***(%)

Variance
****(%)

Production

Tardan heap leach (kg)

95.4

0

0

0

0

0

0

0

0.0

0.0

Tardan CIL (kg)

110.0

278

243

229

203

209.7

208

237

+12.8

+13.8

Tardan total (kg)

205.4

278

243

229

203

209.7

208

237

+12.8

+13.8

Solcocon production (kg)

2.5

0

0

5

7

0

6

9

N/A

+43.3

Gold price ($/oz)

1,481**

1,585

1,713

1,911

1,875**

1,830

1,830

1,813

-0.9

-0.9

Income statement

Revenue

8,975

16,154

12,276

13,832

11,147

10,591

12,592

12,351

16.6

-1.9

Cost of sales

4,830

5,928

4,459

4,772

4,165

4,759

5,655

6,102

28.2

7.9

Gross profit

4,145

10,226

7,817

9,060

6,982

5,832

6,937

6,249

7.2

-9.9

Depreciation

(1,652)

(1,647)

(1,846)

(2,278)

(2,283)

(1,857)

(1,882)

(2,172)

17.0

15.4

General & administration

(480)

(576)

(567)

(873)

(929)

(757)

(750)

(571)

-24.6

-23.9

Other operating income

7

53

15

4

24

14

0

20

42.9

N/A

Other operating expenses

(755)

(182)

(8)

(911)

(1,958)

(79)

(116)

(127)

60.8

9.5

Impairments etc

N/A

N/A

EBIT

1,265

7,874

5,411

5,002

1,836

3,153

4,189

3,399

7.8

-18.9

Interest income

0

0

0

0

0

0

0

N/A

N/A

Interest expense

(1,200)

(1,584)

(1,597)

(1,339)

(1,151)

(910)

(888)

(875)

-3.8

-1.5

Net interest

(1,200)

(1,584)

(1,597)

(1,339)

(1,151)

(910)

(888)

(875)

-3.8

-1.5

Forex gain/(loss)

(240)

(147)

128

(225)

(480)

118

233

97.5

N/A

Profit before tax

(175)

6,143

3,942

3,438

205

2,361

3,301

2,757

16.8

-16.5

Tax

445

248

1,275

475

1,077

652

513

813

24.7

58.5

Effective tax rate (%)

(254.3)

4.0

32.3

13.8

525.4

27.6

15.6

29.5

6.9

89.1

Profit after tax

(620)

5,895

2,667

2,963

(872)

1,709

2,788

1,944

13.8

-30.3

Average no. shares (000s)

98,649

98,649

98,649

98,729

98,768

98,768

98,768

98,768

0.0

0.0

Derivatives (000s)

0

345

0

0

0

0

0

0

0.0

0.0

Fully diluted no. shares (000s)

98,649

98,994

98,649

98,729

98,768

98,768

98,768

98,768

0.0

0.0

EPS ($/share)

(0.006)

0.060

0.027

0.030

(0.009)

0.017

0.028

0.020

17.6

-28.6

Diluted EPS ($/share)

(0.006)

0.060

0.027

0.030

(0.009)

0.017

0.028

0.020

17.6

-28.6

Source: Edison Investment Research, Auriant Mining. Note: As reported. *Unless otherwise indicated. **Estimate. ***Q221 versus Q121. ****Q221a versus Q221e.

Although the effective tax rate of 29.5% was materially higher than our forecast rate of 15.6% (NB leading to a rise in the value of deferred tax assets on Auriant’s balance sheet of $288k), it was well within the normal range of variation historically observed at Auriant on a quarterly basis (see Exhibit 2). In addition, cash taxes of $162k were materially lower than the income statement charge of $813k and amounted to an effective cash tax rate of only 5.9%. Compared with a normalised estimate of cash flow from the income statement of $4.1m ($1.9m in earnings plus $2.2m depreciation) therefore, actual cash flow from operations amounted to $6.2m, of which only $1.0m was consumed in investing activities and the remainder used to pay interest, repay debt (including leases) and build cash.

Guidance and assumptions

FY21

Production

On 21 December, Auriant announced total production guidance for 2021 of 900–930kg gold from Tardan and Solcocon combined (cf 953kg produced in FY20) from 350–380kt of ore processed through the Tardan CIL plant. This guidance was reiterated at the time of its Q221 results on 30 August. Assuming production of c 39kg from Solcocon (albeit this has proven to be susceptible to both weather-related risks and COVID-19 related risks in the past), this total implies production from the Tardan CIL plant in the range 861–891kg at a yield of c 2.40g/t and a head grade of c 2.61g/t. As in FY20, relatively little seasonal variation in production is anticipated at the Tardan CIL plant (in sharp contrast to the former heap leach operation).

Costs

As a result of test work conducted during the ramp-up phase, Auriant has upgraded the leaching tanks at Tardan (in Q419) to improve ore oxidation to ensure stable processing results. In addition, in December 2019, the company agreed a new energy deal to increase the power allocation to the Tardan CIL plant by 25% from 2.0MW to 2.5MW using a newly built 35kV power line, which has allowed it to minimise its use of diesel generators on site and, on occasion, to stop using them altogether. Cash costs per tonne processed are nevertheless expected to be broadly unchanged in US dollar terms in FY21 relative to FY20 (eg $58.12/t cf $54.04/t – Edison calculation), reflecting higher volumes of stripping and exploration drilling and some inflationary pressures in local currency terms (given something of a ‘boom’ in resources investment in Russia in addition to normal staff salary indexation). At the same time, the value of the rouble relative to the US dollar has remained broadly stable, from RUB73.1640/US$ at the time of our last note (Fifth successive quarter of success, published on 11 June 2021) to RUB72.6537/US$ at the time of writing, while the oil price is currently 65.7% higher than it was this time last year and has been 57.4% higher so far this year, to date. Finally, as discussed previously, stripping costs delayed from FY20 are now being incurred in FY21.

FY21 quarterly forecasts

Based on the production guidance provided by management for FY21 (and with the usual caveat surrounding quarterly predictions), our financial forecasts for Auriant for FY21 by quarter are as shown in Exhibit 3.

Relative to our prior forecasts, the main changes that we have made to our estimates are:

An 3.9% decline in the average gold price, for the remainder of the year, from $1,870/oz to $1,798/oz.

Revisions to forex rates for the remainder of the year of:

RUB72.6537/US$ compared to RUB73.1640 previously (-0.7%)

SEK8.5570/US$ compared to SEK8.3314/US$ previously (+2.7%)

US$1.1843/ compared to US$1.2138/ previously (-2.4%)

Exhibit 3: Auriant estimates, Q121–Q421e, by quarter ($000s*)

Q121a

Q221a

Q321e
(previous)

Q321e
(current)

Q421e
(previous)

Q421e
(current)

FY21e
(current)

FY21e
(previous)

Production

Tardan heap leach (kg)

0

0

0

0

0

0

0

0

Tardan CIL (kg)

209.7

236.6

231

222

231

222

891

879

Tardan total (kg)

209.7

236.6

231

222

231

222

891

879

Solcocon production (kg)

0

8.6

24

24

6

6

39

36

Gold price ($/oz)

1,830

1,813

1,870

1,797

1,870

1,798

1,808

1,852

Income statement

Revenue

10,591

12,351

15,315

14,234

14,233

13,200

50,377

52,731

Cost of sales

4,759

6,102

6,428

6,389

5,660

5,650

22,900

22,502

Gross profit

5,832

6,249

8,887

7,846

8,573

7,550

27,477

30,229

Depreciation

(1,857)

(2,172)

(1,907)

(2,197)

(1,932)

(2,222)

(8,448)

(7,578)

General & administration

(757)

(571)

(750)

(750)

(750)

(750)

(2,828)

(3,007)

Other operating income

14

20

0

0

0

0

34

14

Other operating expenses

(79)

(127)

(116)

(116)

(116)

(116)

(438)

(427)

Impairments etc

0

0

EBIT

3,153

3,399

6,114

4,783

5,775

4,462

15,797

19,231

Interest income

0

0

0

0

Interest expense

-910

(875)

    (833)

(821)

(755)

(755)

(3,360)

(3,386)

Net interest

-910

(875)

(833)

(821)

(755)

(755)

(3,360)

(3,386)

Forex gain/(loss)

118

233

351

118

Profit before tax

2,361

2,757

5,281

3,962

5,020

3,707

12,788

15,963

Tax

652

813

821

616

781

576

2,657

2,767

Marginal tax rate (%)

27.6

29.5

15.6

15.5

15.6

15.5

20.8

17.3

Profit after tax

1,709

1,944

4,460

3,346

4,239

3,131

10,130

13,196

Average no. shares (000s)

98,768

98,768

98,768

98,768

98,768

98,768

98,768

98,768

Derivatives (000s)

0

0

0

0

0

0

0

0

Fully diluted no. shares (000s)

98,768

98,768

98,768

98,768

98,768

98,768

98,768

98,768

EPS ($/share)

0.017

0.020

0.045

0.034

0.043

0.032

0.103

0.134

Diluted EPS ($/share)

0.017

0.020

0.045

0.034

0.043

0.032

0.103

0.134

Source: Edison Investment Research. Note: *Unless otherwise indicated.

Valuation

In common with our standard practice, our valuation of Auriant has been performed via the discounting of maximum potential future dividends at a discount rate of 10%, assuming all excess cash generated is distributed to shareholders only after all debt has been repaid.

On the basis that management executes the Tardan CIL and the Kara-Beldyr projects according to the operational and financial parameters anticipated, we estimate that Auriant is capable of generating average cash flows of $63.3m, average earnings of $54.6m and average EPS of 38.1c in the 10 years from FY25–34, thus allowing it to pay maximum potential dividends to shareholders of 42.9 per share in the period FY26–34. Discounted at our customary 10% discount rate, such a stream of dividends has a value of $1.59 per share (cf $1.72/share previously), as shown in the exhibit below, rising to $2.56/share on the cusp of the company’s maiden dividend in FY26. Readers should note that near-term effects (ie the gold price, forex and Q221 results) were responsible for a 4c/share decline in our valuation, while the balance of the decline (9c) could be attributed to the decline in Auriant’s share price from SEK4.70 at the time of our last report (see Fifth successive quarter of success, published on 11 June 2021) to SEK3.84 currently, thereby increasing future assumed dilution (see ‘Sensitivities and risks’, below). In the absence of this factor, our valuation would have otherwise remained steady, at $1.69/share (cf $1.72/share previously).

Exhibit 4: Auriant forecast EPS and maximum potential DPS, FY15–35e

Source: Edison Investment Research

Our approach to gold price forecasting, and the gold prices underlying our earnings and dividend assumptions, is set out in our note A golden future, published in June 2020. Readers should also note that our valuation specifically excludes any value attributable to Solcocon beyond FY21 on account of the variable nature of alluvial mining operations. However, it is possible that activities at Solcocon may be reconfigured in due course to incorporate hard rock mining and processing.

Sensitivities and risks

In qualitative terms, the principal risks to which Auriant is immediately exposed include geographical/sovereign (including regulatory), geological, metallurgical, engineering, funding, financing and management risks. In general terms, these may be summarised as execution risk relating to management’s ability to bring the Kara-Beldyr project in particular to account within its geographical jurisdiction at the required technical and economic parameters (note however that this risk has already been substantially mitigated by management’s success in developing the Tardan CIL project). Once in production, these risks will reduce and be partially replaced by others, such as commercial, commodity price, foreign exchange and global economic risks.

However, one specific risk that bears further, immediate consideration from an empirical perspective is funding. In this particular case, our valuation is sensitive to the price at which Auriant is assumed to raise an additional $20m in equity for Kara-Beldyr (assumed at the start of FY22) as follows:

Exhibit 5: Valuation sensitivity to equity funding price

Premium/(discount) to current share price (%)

-21.9

-8.9

0.0

+4.2

+17.2

+30.2

+43.2

+56.3

+69.3

Equity fund-raising price (SEK)

3.00

3.50

3.84

4.00

4.50

5.00

5.50

6.00

6.50

Valuation ($/share)

1.46

1.54

1.59

1.61

1.67

1.71

1.75

1.79

1.82

Valuation (SEK/share)*

12.49

13.18

13.61

13.78

14.29

14.63

14.97

15.32

15.57

Change cf ‘base case’ (%)

-8.2

-3.2

0.0

+1.2

+5.0

+7.5

+10.0

+12.5

+14.4

Source: Edison Investment Research. Note: *Converted at the prevailing FX rate of SEK8.5570/$.

Readers should note that (assuming conversion before FY26) the above table effectively also provides an analysis of Auriant being funded by way of a convertible bond (cf conventional equity) with a conversion price at one of those shown (typically at a premium to the existing share price compared to conventional equity at a discount) and a coupon close to the company’s cost of debt. In the event of such a convertible remaining unconverted, however, and therefore behaving like conventional debt, our valuation of Auriant would instead rise to $2.16/share at the start of FY21 (albeit with a correspondingly higher maximum debt level of $79.5m (cf $58.5m in the ‘base case’ scenario – see ‘Financials’ section, below).

Financials

At end-June 2021, Auriant had net debt of $60.3m (cf $64.2m at end-Q121 and $65.7m at end-Q420) on its balance sheet, but $61.9m (cf $66.1m at end-Q121 and $67.2m at end-Q420) if lease liabilities are included. While, at first glance, net debt has fallen by $3.9m during the quarter (excluding lease liabilities), we estimate that it would have fallen by $5.8m if all the gold produced during the quarter had been sold and by $9.8m if all the gold currently held in inventory as ‘finished products’ had also been sold. As noted in its results call with analysts on 30 August, the change in Auriant’s sales policy with respect to gold (from ‘maximised’ to ‘as needed’) has arisen as a consequence of its success in fully repaying earlier high cost debt (originally raised to help finance the CIL plant construction), which has resulted in a material reduction in interest rates from 9.5% in H120 to 4.9% in H121 and which has also now allowed it to refocus operationally on deferred stripping at the Tardan deposit. Hence early/accelerated debt repayment is no longer a priority for the company.

Assuming the company raises an additional SEK171.1m ($20m) in cash via equity funding at the start of FY22, we forecast that its net debt will evolve as follows until FY25, before being eliminated in FY26 (NB excluding any effect from unsold gold):

Exhibit 6: Auriant forecast net debt evolution, FY20–25e ($m)

End-year

FY20

FY21e

FY22e

FY23e

FY24e

FY25e

Net debt (current estimates)

67.2

65.1

43.3

58.5

54.4

20.0

Source: Auriant Mining accounts, Edison Investment Research

Note that the estimates above assume the start of Kara-Beldyr capex in H221. Otherwise, our estimate of Auriant’s maximum (future) net debt requirement of $58.5m (cf $55.9m previously) at end-FY23 equates to a leverage ratio (net debt/(net debt+equity)) of 51.3% (cf 48.2% previously).

COVID-19

Mining operations at Tardan continue to operate, to all intents and purposes, as normal. All personnel on site are subject to daily temperature checks and the mandatory use of personal protective equipment to minimise the risk of infection. Intensive disinfection measures have also been implemented. To date, quarantine measures are reported to have had an insignificant effect on the mine’s operations. Further measures will depend on employee test results. Even so, Auriant has launched a vaccination programme at Tardan. In H121, it vaccinated more than half of its workforce (261 people) and aims to make the vaccine available to all employees of the company in due course. In the meantime, management is confident that mining and gold production can be maintained at Tardan, although there could be temporary interruptions to some of the mine’s operations depending on the number of people infected at any one time and their positions at the mine. In accordance with Rospotrebnadzor’s instructions, infected employees are released from observation once two negative test results at least one day apart have been obtained.

Exhibit 7: Financial summary

US$'000s

2015

2016

2017

2018

2019

2020

2021e

2022e

2023e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

33,429

43,380

33,532

17,373

29,762

53,409

50,377

55,577

51,522

Cost of Sales

(19,360)

(19,391)

(25,061)

(16,790)

(19,610)

(19,324)

(22,900)

(17,715)

(16,202)

Gross Profit

14,069

23,989

8,471

583

10,152

34,085

27,477

37,862

35,320

EBITDA

 

 

10,242

21,987

8,846

(1,714)

7,208

31,236

24,245

34,862

32,320

Operating Profit (before amort. and except.)

 

919

15,416

2,487

(6,373)

2,197

23,182

15,797

25,724

29,348

Intangible Amortisation

0

0

0

0

0

0

0

0

0

Exceptionals

(14,216)

0

(104)

0

0

(3,059)

0

0

0

Other

0

0

1,027

(1,763)

679

0

351

0

0

Operating Profit

(13,297)

15,416

3,410

(8,136)

2,876

20,123

16,148

25,724

29,348

Net Interest

(7,081)

(7,577)

(5,568)

(3,798)

(4,390)

(6,606)

(3,360)

(3,253)

(2,165)

Profit Before Tax (norm)

 

 

(6,162)

7,839

(3,081)

(10,171)

(2,193)

16,576

12,437

22,471

27,183

Profit Before Tax (FRS 3)

 

 

(20,378)

7,839

(2,158)

(11,934)

(1,514)

13,517

12,788

22,471

27,183

Tax

(1,116)

(1,355)

(28)

1,831

278

(3,075)

(2,657)

(5,693)

(5,331)

Profit After Tax (norm)

(7,278)

6,484

(2,082)

(10,103)

(1,236)

13,501

10,130

16,778

21,852

Profit After Tax (FRS 3)

(21,494)

6,484

(2,186)

(10,103)

(1,236)

10,442

10,130

16,778

21,852

Average Number of Shares Outstanding (m)

17.8

17.8

35.6

92.7

98.6

98.7

98.8

143.3

143.3

EPS - normalised (c)

 

 

(40.9)

36.4

(5.8)

(10.9)

(1.3)

13.7

10.3

11.7

15.2

EPS - normalised and fully diluted (c)

 

 

(35.8)

35.1

(5.7)

(10.8)

(1.2)

13.7

10.3

11.7

15.2

EPS - (IFRS) (c)

 

 

(120.7)

36.4

(6.1)

(10.9)

(1.3)

10.6

10.3

11.7

15.2

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

42.1

55.3

25.3

3.4

34.1

63.8

54.5

68.1

68.6

EBITDA Margin (%)

30.6

50.7

26.4

-9.9

24.2

58.5

48.1

62.7

62.7

Operating Margin (before GW and except.) (%)

2.7

35.5

7.4

-36.7

7.4

43.4

31.4

46.3

57.0

BALANCE SHEET

Fixed Assets

 

 

56,192

53,684

49,397

57,690

63,685

54,183

59,623

73,064

110,840

Intangible Assets

32,197

32,638

30,183

30,525

30,133

23,952

25,482

27,182

27,182

Tangible Assets

23,995

21,046

19,214

27,165

33,552

30,231

34,141

45,882

83,658

Investments

0

0

0

0

0

0

0

0

0

Current Assets

 

 

10,460

17,062

19,102

8,436

10,050

10,687

15,067

37,979

21,929

Stocks

4,833

7,883

7,425

3,753

5,057

7,449

8,396

9,263

8,587

Debtors

2,272

186

5,148

3,298

4,111

1,455

2,760

3,045

2,823

Cash

43

4,173

5,069

1,189

145

422

2,549

24,309

9,158

Other

3,312

4,820

1,460

196

737

1,361

1,361

1,361

1,361

Current Liabilities

 

 

(36,001)

(34,149)

(6,179)

(16,227)

(29,189)

(16,498)

(16,187)

(15,761)

(15,637)

Creditors

(5,901)

(3,537)

(2,005)

(1,828)

(6,147)

(2,193)

(1,882)

(1,456)

(1,332)

Short term borrowings

(30,100)

(30,612)

(4,174)

(14,399)

(23,042)

(14,305)

(14,305)

(14,305)

(14,305)

Long Term Liabilities

 

 

(70,307)

(66,995)

(82,054)

(73,053)

(68,864)

(61,649)

(61,649)

(61,649)

(61,649)

Long term borrowings

(61,366)

(58,117)

(71,098)

(62,671)

(59,781)

(53,306)

(53,306)

(53,306)

(53,306)

Other long term liabilities

(8,941)

(8,878)

(10,956)

(10,382)

(9,083)

(8,343)

(8,343)

(8,343)

(8,343)

Net Assets

 

 

(39,656)

(30,398)

(19,734)

(23,154)

(24,318)

(13,277)

(3,146)

33,632

55,484

CASH FLOW

Operating Cash Flow

 

 

6,347

19,359

9,752

3,992

9,185

26,649

22,454

33,451

38,565

Net Interest

(7,081)

(7,577)

(5,568)

(3,798)

(4,390)

(6,606)

(3,360)

(3,253)

(2,165)

Tax

(13)

(27)

(79)

(58)

0

(674)

(2,657)

(5,693)

(5,331)

Capex

(118)

(2,391)

(3,025)

(8,605)

(9,556)

(3,822)

(14,310)

(22,745)

(46,220)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

Financing

49

(10)

5,424

2,367

11

(272)

0

20,000

0

Dividends

0

0

0

0

0

0

0

0

0

Net Cash Flow

(816)

9,354

6,504

(6,102)

(4,750)

15,275

2,126

21,760

(15,151)

Opening net debt/(cash)

 

 

90,607

91,423

84,556

70,203

75,881

82,678

67,189

65,062

43,302

HP finance leases initiated

0

0

0

0

0

0

0

0

0

Other

0

(2,487)

7,849

424

(2,047)

214

0

0

(0)

Closing net debt/(cash)

 

 

91,423

84,556

70,203

75,881

82,678

67,189

65,063

43,302

58,453

Source: Company sources, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Auriant Mining and prepared and issued by Edison, in consideration of a fee payable by Auriant Mining. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Auriant Mining and prepared and issued by Edison, in consideration of a fee payable by Auriant Mining. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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