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▲ 0.02 (1.35%)
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SEK148m
Research: Metals & Mining
Auriant’s Q318 results were characterised by a resumption of mining at Tardan, with 65kt of ore mined at an average grade of 2.79g/t to produce 96kg (3,087oz) gold during the quarter. As a result, the company expects Tardan to produce 380kg (12,217oz) in FY18, which implies production of 173.8kg (5,588oz) in Q418, 8.6% above its earlier guidance of 350kg (11,252oz). However, heavy rainfall in July led to widespread flooding in the Zabaikalsky region, so production at Solcocon in FY18 is now expected to be 73–75kg (2,347–2,411oz) versus earlier guidance of 150kg (4,823oz). As a result, we have updated our forecasts to reflect revised production guidance as well as a lower gold price in H218 versus H118.
Auriant Mining |
Tardan CIL >60% complete |
Q3 results |
Metals & mining |
19 December 2018 |
Share price performance
Business description
Next events
Analyst
Auriant Mining is a research client of Edison Investment Research Limited |
Auriant’s Q318 results were characterised by a resumption of mining at Tardan, with 65kt of ore mined at an average grade of 2.79g/t to produce 96kg (3,087oz) gold during the quarter. As a result, the company expects Tardan to produce 380kg (12,217oz) in FY18, which implies production of 173.8kg (5,588oz) in Q418, 8.6% above its earlier guidance of 350kg (11,252oz). However, heavy rainfall in July led to widespread flooding in the Zabaikalsky region, so production at Solcocon in FY18 is now expected to be 73–75kg (2,347–2,411oz) versus earlier guidance of 150kg (4,823oz). As a result, we have updated our forecasts to reflect revised production guidance as well as a lower gold price in H218 versus H118.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
43.4 |
7.8 |
36.4 |
0.0 |
0.7 |
N/A |
12/17 |
33.5 |
(3.1) |
(5.8) |
0.0 |
N/A |
N/A |
12/18e |
18.3 |
(11.2) |
(11.1) |
0.0 |
N/A |
N/A |
12/19e |
45.1 |
9.7 |
7.6 |
0.0 |
3.1 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
FY19 guidance
In addition to FY18, Auriant has also provided guidance for FY19, including its expectation of production of 570kg (18,326oz) from the Tardan CIL project, 400–450kg (12,860–14,468oz) from the Tardan heap leach operation and 90kg (2,894oz) from Solcocon. The revised guidance has caused us to adjust our forecasts slightly for FY19 to reflect higher output overall, albeit at a lower margin to reflect the lower proportion of output from the CIL plant.
Progress on Tardan CIL project
The Tardan CIL project is reported to be running slightly behind schedule, but still c 60% complete, and is expected to enter production in July 2019. As at end November, the metal frame was reported to be >80% complete, the foundations for heavy equipment 100% complete, the supplementary buildings 90% complete, the coal heating station 100% complete and a new high voltage line 100% complete.
Valuation: US$0.82/SEK7.37 with 89% upside
Assuming an incremental US$13.8m equity fund raising at the prevailing share price in FY19 (to bring the total to US$17.2m gross including the warrant exercise in March 2018), we estimate that Auriant is capable of generating average cash flows of US$37.3m, average earnings of US$31.2m and average EPS of 20.0 cents per annum in the 12-year period of FY22–33 (inclusive). This will allow it to pay maximum average potential dividends to shareholders in the order of 24.0c per share in the period FY25–33 (inclusive). Discounted at our customary 10% discount rate, such a stream of dividends has a value of US$0.82/share, rising to US$1.55/share (SEK7.37, rising to SEK13.93) on the cusp of the company’s first substantive dividend in FY25.
Q3 results summary
Auriant’s Q318 results were characterised by a resumption of mining at Tardan, with 65kt of ore mined at an average grade of 2.79g/t to produce 96kg (3,087oz) gold during the period. As a result, the company expects that production for Tardan during FY18 will be 380kg (12,217oz), which implies production of 173.8kg (5,588oz) in Q418 and is 8.6% above its earlier guidance of 350kg (11,252oz). At the same time, heavy rainfall in July led to widespread flooding in the Zabaikalsky region, which disrupted operations at Solcocon. Although output of 46.6kg (1,498oz) during the quarter was above that of 41.2kg (1,325oz) in the corresponding quarter in 2017, and despite the fact that mining continued into October, the company now expects production from Solcocon to be 73–75kg (2,347–2,411oz) in FY18, compared with its earlier guidance of 150kg (4,823oz). As a result, our expectations for Auriant’s results for FY18 have been updated, as shown in Exhibit 1. This also reflects the decline in the gold price from an average of US$1,317/oz in H118 to US$1,212/oz in Q318 and US$1,219/oz to date in Q418.
Exhibit 1: Auriant results, Q118–Q418e, by quarter (US$000s*)
Q118 |
Q218 |
Q318 |
Q418e |
FY18e |
FY18e |
FY19e |
FY19e |
||
Tardan heap leach production (kg) |
70.6 |
39.7 |
96.0 |
173.8 |
380.1 |
329.0 |
450.0 |
153.0 |
|
Tardan CIL production (kg) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
570.0 |
842.0 |
|
Tardan production (kg) |
70.6 |
39.7 |
96.0 |
173.8 |
380.1 |
329.0 |
1,020.0 |
995.0 |
|
Solcocon production (kg) |
0.0 |
16.1 |
46.6 |
10.3 |
73.0 |
150.0 |
90.0 |
0.0 |
|
Gold price (US$/oz) |
1,335 |
1,318 |
1,212 |
1,225 |
1,291 |
1,320 |
1,263 |
1,263 |
|
Revenue |
2,327 |
3,606 |
5,108 |
7,250 |
18,291 |
20,346 |
45,070 |
40,403 |
|
Cost of sales |
-2,641 |
-4,371 |
-5,035 |
-6,237 |
-18,284 |
-14,447 |
-22,557 |
-17,389 |
|
Gross profit |
-314 |
-765 |
73 |
1,013 |
7 |
5,899 |
22,513 |
23,014 |
|
Depreciation |
-1,083 |
-844 |
-1,310 |
-1,510 |
-4,747 |
-4,632 |
-4,239 |
-4,239 |
|
General & administration |
-678 |
-829 |
-496 |
-668 |
-2,671 |
-2,500 |
-2,500 |
-2,500 |
|
Other operating income |
50 |
189 |
97 |
0 |
336 |
0 |
0 |
0 |
|
Other operating expenses |
-68 |
-390 |
257 |
-116 |
-317 |
-466 |
-317 |
-466 |
|
Impairments etc |
0 |
0 |
0 |
0 |
0 |
0 |
|||
EBIT |
-2,093 |
-2,639 |
-1,379 |
-1,281 |
-7,392 |
-1,699 |
15,457 |
15,809 |
|
Interest income |
5 |
0 |
0 |
0 |
5 |
0 |
|||
Interest expense |
-940 |
-1,015 |
-875 |
-943 |
-3,773 |
-5,616 |
|||
Net interest |
-935 |
-1,015 |
-875 |
-943 |
-3,768 |
-5,616 |
-5,748 |
-4,681 |
|
Forex gain/(loss) |
-225 |
-1,043 |
-82 |
0 |
-1,350 |
0 |
|||
Profit before income tax expense |
-3,253 |
-4,697 |
-2,336 |
-2,224 |
-12,510 |
-7,315 |
9,709 |
11,128 |
|
Tax |
608 |
671 |
536 |
445 |
2,260 |
0 |
0 |
0 |
|
Marginal tax rate |
18.7 |
14.3 |
22.9 |
20.0 |
0.0 |
0.0 |
0.0 |
||
Profit after tax |
-2,645 |
-4,026 |
-1,800 |
-1,779 |
-10,250 |
-7,315 |
9,709 |
11,128 |
|
Minority interest |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Do. (%) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Profit attributable to shareholders |
-2,645 |
-4,026 |
-1,800 |
-1,779 |
-10,250 |
-7,315 |
9,709 |
11,128 |
|
Dividend |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Retained earnings |
-2,645 |
-4,026 |
-1,800 |
-1,779 |
-10,250 |
-7,315 |
9,709 |
11,128 |
|
Average no. shares (000's) |
74,847.182 |
98,648.502 |
98,648.502 |
98,648.502 |
92,698.172 |
130,840.845 |
127,586.031 |
168,968.882 |
|
Derivatives (000's) |
0.000 |
692.500 |
692.500 |
692.500 |
692.500 |
692.500 |
692.500 |
692.500 |
|
Fully diluted no. shares (000's) |
74,847.182 |
99,341.002 |
99,341.002 |
99,341.002 |
93,390.672 |
131,533.345 |
128,278.531 |
169,661.382 |
|
EPS (US$/sh) |
-0.035 |
-0.041 |
-0.018 |
-0.018 |
-0.111 |
-0.056 |
0.076 |
0.066 |
|
Diluted EPS (US$/sh) |
-0.035 |
-0.041 |
-0.018 |
-0.018 |
-0.110 |
-0.056 |
0.076 |
0.066 |
Source: Edison Investment Research, Auriant Mining. Note: *Unless otherwise indicated.
In part the increase in our forecast for ‘cost of sales’ may be attributed to the flooding in Zabaikalsky, although at least US$2.1m of the increase may also be attributed to changes in ‘work in progress’ in H118.
In addition to its guidance for FY18, Auriant has also provided guidance for FY19, including its expectation of production of 570kg (18,326oz) from the Tardan CIL project, 400–450kg (12,860–14,468oz) from the Tardan heap leach operation and 90kg (2,894oz) from Solcocon. The slightly revised guidance has caused us to slightly adjust our forecasts for FY19 to reflect higher output overall, albeit at a lower margin to reflect the lower proportion of output from the CIL plant, compared with previously. As a result, we have reduced our forecast for profit attributable to shareholders by 12.8% in FY19 (see Exhibit 1), although this is more than offset by a lower anticipated weighted average number of shares in issue in the period (see Financials, below), owing to the effect of a higher prevailing Auriant share price applied to future financing assumptions, such that our forecast for EPS is now 15.2% higher than at the time of our Outlook note in early March.
Tardan CIL progress update
As implied by its reduced production forecast for FY19, the Tardan CIL project is reported to be running slightly behind schedule. Nevertheless, it has been passed by the State Ecological Expertise, which means the plant complies with Russian Federation environmental protection standards. As of early December, the project was reported to be c 60% complete, including the metal frame (>80% complete), the foundations for heavy equipment (100% complete), the supplementary buildings (90% complete), the coal heating station (100% complete) and a new high voltage line (100% complete), such that it is now expected to enter production in July 2019 (versus late Q119/early Q219 previously).
Financials
Auriant had net debt of US$70.7m at end-September 2018 (versus net debt of US$70.2m at end-December 2017) after having raised US$3.2m (net) via the exercise of warrants at SEK2.50/sh in March. In November 2018, it also reached a further agreement with Golden Impala (a vehicle of its majority shareholder) for a new revolving bridging loan facility of US$3m to provide short-term working capital during the low production season (Q418–Q119, inclusive) and to secure continuous funding of the CIL project). Assuming it raises an additional US$13.8m in cash (to bring the total to US$17.2m gross, as per our Outlook note in March) via an equity funding at the prevailing share price of SEK2.14/sh in early FY19, all other things being equal, we would then anticipate Auriant’s net debt to evolve as shown in Exhibit 2, before being eliminated in FY25:
Exhibit 2: Auriant forecast net debt evolution, FY17–FY24e (US$m)
End-year |
FY17 |
FY18e |
FY19e |
FY20e |
FY21e |
FY22e |
FY23e |
FY24e |
Net debt (current) |
70.2 |
71.8 |
55.3 |
71.2 |
108.9 |
87.2 |
43.6 |
2.1 |
Net debt (previous) |
70.2 |
58.5 |
44.9 |
60.8 |
97.8 |
75.3 |
31.0 |
0.0 |
Source: Edison Investment Research
Note the forecast increase in net debt between FY19-21 as Kara-Beldyr is brought into production. At its maximum of US$108.9m, our estimate of Auriant’s maximum net debt requirement at end-FY21 equates to a leverage ratio (net debt/[net debt+equity]) of 92.0%.
Valuation
In common with its 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 plan, we estimate that Auriant is capable of generating average cash-flows of US$37.3m, average earnings of US$31.2m and average EPS of 20.0 cents (versus 16.7c previously) in the 12-year period from FY22–33 (inclusive), thus allowing it to pay maximum potential dividends to shareholders in the order of 24.0c per share (versus 20.6c/sh previously) in the period FY25–33 (inclusive). Discounted at our customary 10% discount rate, such a stream of dividends has a value of US$0.82 per share (cf US$0.72/sh previously), as shown in Exhibit 3 below, rising to US$1.55/share in FY25 (cf US$1.29/share previously) on the cusp of the company’s first substantive potential dividend in FY25:
Exhibit 3: Auriant forecast EPS and maximum potential DPS, FY15–FY33e |
Source: Edison Investment Research |
Exhibit 4: Financial summary
US$'000s |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
2021e |
2022e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
33,429 |
43,380 |
33,532 |
18,291 |
45,070 |
45,077 |
46,005 |
124,600 |
Cost of Sales |
(19,360) |
(19,391) |
(25,061) |
(18,284) |
(22,557) |
(20,569) |
(37,298) |
(68,470) |
||
Gross Profit |
14,069 |
23,989 |
8,471 |
7 |
22,513 |
24,508 |
8,707 |
56,130 |
||
EBITDA |
|
|
10,242 |
21,987 |
8,846 |
(2,645) |
19,696 |
21,191 |
5,390 |
52,813 |
Operating Profit (before amort. and except.) |
919 |
15,416 |
2,487 |
(7,392) |
15,457 |
17,312 |
1,840 |
42,699 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
1 |
||
Exceptionals |
(14,216) |
0 |
(104) |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
1,027 |
(1,350) |
0 |
0 |
0 |
0 |
||
Operating Profit |
(13,297) |
15,416 |
3,410 |
(8,742) |
15,457 |
17,312 |
1,840 |
42,700 |
||
Net Interest |
(7,081) |
(7,577) |
(5,567) |
(3,768) |
(5,748) |
(4,422) |
(5,696) |
(8,710) |
||
Profit Before Tax (norm) |
|
|
(6,162) |
7,839 |
(3,080) |
(11,160) |
9,709 |
12,890 |
(3,856) |
33,989 |
Profit Before Tax (FRS 3) |
|
|
(20,378) |
7,839 |
(2,157) |
(12,510) |
9,709 |
12,890 |
(3,856) |
33,990 |
Tax |
(1,116) |
(1,355) |
(28) |
2,260 |
0 |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(7,278) |
6,484 |
(2,081) |
(10,250) |
9,709 |
12,890 |
(3,856) |
33,989 |
||
Profit After Tax (FRS 3) |
(21,494) |
6,484 |
(2,185) |
(10,250) |
9,709 |
12,890 |
(3,856) |
33,990 |
||
Average Number of Shares Outstanding (m) |
17.8 |
17.8 |
35.6 |
92.7 |
127.6 |
156.5 |
156.5 |
156.5 |
||
EPS - normalised (c) |
|
|
(40.9) |
36.4 |
(5.8) |
(11.1) |
7.6 |
8.2 |
(2.5) |
21.7 |
EPS - normalised and fully diluted (c) |
|
(35.8) |
35.1 |
(5.7) |
(11.0) |
7.6 |
8.2 |
(2.5) |
21.6 |
|
EPS - (IFRS) (c) |
|
|
(120.7) |
36.4 |
(6.1) |
(11.1) |
7.6 |
8.2 |
(2.5) |
21.7 |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
42.1 |
55.3 |
25.3 |
0.0 |
50.0 |
54.4 |
18.9 |
45.0 |
||
EBITDA Margin (%) |
30.6 |
50.7 |
26.4 |
-14.5 |
43.7 |
47.0 |
11.7 |
42.4 |
||
Operating Margin (before GW and except.) (%) |
2.7 |
35.5 |
7.4 |
-40.4 |
34.3 |
38.4 |
4.0 |
34.3 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
56,192 |
53,684 |
49,397 |
53,688 |
58,637 |
87,296 |
122,284 |
119,709 |
Intangible Assets |
32,197 |
32,638 |
30,183 |
31,221 |
32,259 |
33,297 |
34,335 |
35,373 |
||
Tangible Assets |
23,995 |
21,046 |
19,214 |
22,467 |
26,378 |
53,999 |
87,949 |
84,336 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
10,460 |
17,062 |
19,102 |
8,125 |
23,521 |
11,443 |
11,648 |
29,054 |
Stocks |
4,833 |
7,883 |
7,425 |
3,658 |
7,512 |
7,513 |
7,668 |
20,767 |
||
Debtors |
2,272 |
186 |
5,148 |
3,007 |
2,470 |
2,470 |
2,521 |
6,827 |
||
Cash |
43 |
4,173 |
5,069 |
0 |
12,079 |
0 |
0 |
0 |
||
Other |
3,312 |
4,820 |
1,460 |
1,460 |
1,460 |
1,460 |
1,460 |
1,460 |
||
Current Liabilities |
|
|
(36,001) |
(34,149) |
(6,179) |
(4,250) |
(3,429) |
(3,266) |
(4,641) |
(7,203) |
Creditors |
(5,901) |
(3,537) |
(2,005) |
(2,076) |
(3,429) |
(3,266) |
(4,641) |
(7,203) |
||
Short term borrowings |
(30,100) |
(30,612) |
(4,174) |
(2,174) |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(70,307) |
(66,995) |
(82,054) |
(80,627) |
(78,306) |
(82,160) |
(119,835) |
(98,114) |
Long term borrowings |
(61,366) |
(58,117) |
(71,098) |
(69,671) |
(67,350) |
(71,204) |
(108,879) |
(87,158) |
||
Other long term liabilities |
(8,941) |
(8,878) |
(10,956) |
(10,956) |
(10,956) |
(10,956) |
(10,956) |
(10,956) |
||
Net Assets |
|
|
(39,656) |
(30,398) |
(19,734) |
(23,064) |
423 |
13,313 |
9,457 |
43,446 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
6,347 |
19,359 |
9,751 |
1,984 |
17,733 |
21,026 |
6,559 |
37,969 |
Net Interest |
(7,081) |
(7,577) |
(5,567) |
(3,768) |
(5,748) |
(4,422) |
(5,696) |
(8,710) |
||
Tax |
(13) |
(27) |
(79) |
2,260 |
0 |
0 |
0 |
0 |
||
Capex |
(118) |
(2,391) |
(3,025) |
(9,038) |
(9,188) |
(32,538) |
(38,538) |
(7,538) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
49 |
(10) |
5,424 |
3,173 |
13,777 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(816) |
9,354 |
6,504 |
(5,390) |
16,574 |
(15,934) |
(37,675) |
21,721 |
||
Opening net debt/(cash) |
|
|
90,607 |
91,423 |
84,556 |
70,203 |
71,845 |
55,271 |
71,204 |
108,879 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(2,487) |
7,849 |
3,748 |
0 |
0 |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
91,423 |
84,556 |
70,203 |
71,845 |
55,271 |
71,204 |
108,879 |
87,158 |
Source: Company sources, Edison Investment Research
|
|
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