Asa Bridle, Director of Equity Research – Metals & Mining at Cantor Fitzgerald Europe, has responded to an update from Hummingbird Resources, currently rated as BUY.
Hummingbird Resources (BUY) – Quarterly update, project construction remains on track
HUM LN (24.5p, TP 32p), Market Cap £84.1m
In its quarterly update, HUM has confirmed that the construction of the Yanfolila gold mine in Mali remains on time and on budget ahead of the scheduled start of mining in 3Q17 and the first gold pour by the end of the year. At present 36% of construction has been completed with 63% of capital committed. Overall 59% of the project-related workstreams are reported to be completed. The stock has risen by 36% in the ytd on the back of the rising gold price and the progress being made on the mine construction. We believe that further upside should come through in the share price in the remainder of the year as the company completes the mine build and moves from development into production and begins to generate cash. Hence we reiterate our BUY recommendation and TP of 32p.
- More key news flow to come in the short term – Based on the quarterly commentary, May is set to be a key month with the delivery of the plant’s ball mill to site and completion of the carbon-in-leach tanks. Ahead of first mining, grade control drilling and dewatering drilling in the proposed pit areas have been completed while construction of the Tailings Storage Facility is now underway. This will be followed by the start of pre-construction mining.
- General manager appointment made – The company also confirmed the appointment of a general manager during the quarter with Kevin Moxham’s appointment in February. He was previously General Manager and Head of Operations at Newmont Golden Ridge Ltd where he oversaw the commissioning and production of the 9Mtpa Akyem Gold Mine in Ghana.
- Finances in good order – Ahead of the outflow of the US$25m to repay the Taurus bridging loan, and the balancing inflow of the first tranche of the new Coris bank facility, HUM’s cash position stood at US$54m at the end of March.
- Valuation – Our 32p valuation for HUM is based on NPV (0.7x) and EV/reserve (US$134/oz) multiples taken from HUM’s West African gold development peer group and applied to the Yanfolila project only. Hence the company’s Dugbe project in Liberia, and its exploration ground in Mali offer potential upside to this level.
- Risks – As a junior mining company, risks associated with HUM include operational risk, commodity pricing and foreign exchange exposure.