EQUITY RESEARCH
AXIOM MINING LIMITED
19 DECEMBER 2014
SOLOMON ISLANDS, VIETNAM, AUSTRALIA
(QLD)
Share Price: A$0.017
NICKEL-COBALT, GOLD, SILVER, BASE
METALS
EXCHANGE: ASX:AVQ
CAPITAL PROFILE
0.017
52 week range (A$/share)
0.032 to
0.010
Number of shares (M)
3337.5
Options and warrants (M)
562.3
Convertible notes (M) *
0.70
Fully diluted * (M)
3941.0
Market capitalisation (undiluted) (A$M)
56.7
Debt (A$M) - Dec '14F
1.7
Enterprise value (A$M)
57.6
Major shareholders: Drake Private Investments (8.1%),
Admark Investments P/L (3.6%),UBS Nominees (2.1%)
Avg monthly volume (M)
Cash (A$M) - Dec '14F
Price/Cash (x)
Price/Book (x)
Listed company options:
259.0
0.8
67.6
10.1
No
INVESTMENT POINTS
♦
In September AVQ scored a major victory in the three year court battle with
the Japanese giant Sumitomo Metal Mining (SMM) over ownership of the
large scale Isabel Nickel Project. SMM desperately wanted it, AVQ got it.
♦
AVQ is aiming for first production in 4Q15 with a planned ~2Mtpa direct
shipping ore (DSO) operation.
♦
A 2Mtpa DSO operation would give Axiom a low capex (~A$20-25m) fast
track route to production, generating strong cashflow (forecast ~A$50mpa)
and laying the foundations for a larger scale ore upgrading project probably
with an existing nickel player as a partner.
♦
Previous work (INCO, Kaiser Engineers) led to the establishment of an
estimate of mineralisation (non JORC compliant) of 159Mt @1.05% Ni and
0.06% Co (equivalent to 1.6Mt of contained nickel) to a depth of only ~6m.
♦
AVQ’s initial drilling has produced very attractive grades (>2% Ni) below 8m
depth. This confirms our view that Isabel is shaping up to be one of the
largest premium grade laterite deposits in the Pacific with significantly higher
tonnage (>500Mt?) and better grades than the INCO-Kaiser estimates.
♦
The nickel price (and DSO prices) are forecast to continue to recover strongly
in 2015 due to looming supply deficits.
♦
AVQ’s West Guadalcanal Project in the Solomons is being drilled, targeting
high grade epithermal gold zones - initial results are expected soon.
♦
Our base case valuation for AVQ of A$0.057/share is based on riskdiscounted scenario of initial production from Isabel and a likely uptick in
DSO prices. Our medium term target (6 months) is A$0.040/share assuming
SMM is unsuccessful in its appeal against the court ruling.
♦
Six month share price catalysts include further nickel price out-performance,
likely dismissal of SMM appeal against the court ruling, near term cash
injection (~A$6m) from court costs claim, further Isabel drilling results and
DSO project development progress, West Guadalcanal drilling results (Dec
’14) and on-going discussions with potential long-term project partners.
* Con. notes convert at share trading price, A$0.017 assumed.
AVQ – Axiom Mining Limited Limited
Share Price ($/Share)
0.03
Recommendation: Speculative Buy
Despite having majority ownership of the large scale Isabel Nickel
Project in the Solomon Islands, the AVQ share price has recently
weakened due to commodity price gloom and an unfortunate court
appeal by Japanese giant Sumitomo over ownership of Isabel. With
excellent recent drilling results confirming premium grades at
Isabel, we consider the current share price (70% below our base
case valuation of A$0.057/share) presents an excellent buying
opportunity with a forecast near-term rebound in nickel and nickel
DSO prices and Sumitomo’s appeal likely to be thrown out in 1Q15.
ADVANCED EXPLORATION
Share price (A$)
Axiom is focusing on fast tracking initial low-capex DSO
production at the large scale Isabel Nickel Project.
0.02
0.01
Dec-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Dec-13
0
Source: Bloomberg
DIRECTORS
Stephen Williams (Non Exec Chairman)
Ryan Mount (CEO and Managing Director)
EXPLORATION AND FINANCIAL FORECASTS
Year End September
Mr Ryan Mount
CEO and Managing Director
Tel: +(61) 7 3319 4100
Newstead, QLD, Australia
Tel: +67 7 29877
Honiara, Solomon Islands
www.axiom-mining.com
Analyst: Dr Tony Parry
[email protected]
RCR DECEMBER 2014
Exploration and evaluation (A$M)
Corporate (A$M)
Exploration/(Expl.+ Corporate) (%)
Funding duration at current burn (years)
Shares on issue (pr end) (m shares)
Drilling - RAB (M) *
Drilling - RC/Diamond (M) *
Capital raisings (A$M)
Funding from JV partners (A$M)
Cash (A$M)
Cash backing (Ac/share)
Net asset backing (Ac/share)
Dec-14F
2014a
2015F
2016F
1.58
0.74
68
1.28
0.70
65
3304.6
0
1,200
4.4
0
2.3
0.1
0.2
3337.5
0
1,300
1.0
0
0.8
0.0
0.2
3.86
1.89
67
0.2
3337.5
0
0
15.9
0
1.2
0.0
0.1
5.18
2.84
65
0.4
3337.5
10,000
6,000
1.0
0
3.2
0.1
0.4
5.20
2.80
65
0.7
3337.5
40,000
14,000
0.0
0
5.3
0.2
0.6
Sep-14a
* A ll drilling metres are RCR estimates.
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
1
EQUITY RESEARCH
KEY PROJECTS
Project
Ownership
JV
Target
Process
/Option
Route
Metal
Partner
Type
Landowners laterite
DSO
80% *
Ni-Co
100%
na
epithermal
na
Au-Ag
porphyry
na
72%
SOE ^
Au
63%
Au
SOE ^
na
porphyry
100%
na
porphyry
na
Cu-Au-Ag-Zn
Isabel Nickel Project *
West Guadalcanal
Quang Tri
Quang Binh
Cardross
* Isabel granted, subject to appeal by Sumitomo. ^ SOE - State-Ow ned Entity
Project
Status
Adv Expl
Early Expl
Early Expl
Early Expl
Mid Expl
Location
Sol. Is l.
Sol. Is l.
Vietnam
Vietnam
Aus (Qld)
COMPANY COMMENT
Overview: AVQ listed on the ASX in Nov ’06 with a Pacific Rim
focus. Its initial focus was on gold and base metals exploration in
North Queensland and the Sepon region in Vietnam. Since 2010
its primary focus has shifted towards the Solomon Islands with
the Isabel Nickel Project. It also holds other prospective gold
exploration ground near the Gold Ridge deposit on the Island of
West Guadalcanal, also in the Solomons.
History of the Isabel Nickel Project: Isabel has been known
about for over fifty years. International Nickel Company (INCO)
discovered the deposit in 1956. INCO spent over US$15M on the
digging of over 4,000 bulk sampling test pits, along with over
1,500 auger drill holes and feasibility studies. From 1991 to 1993,
Kaiser Engineers undertook further exploration (including test pits
and testing of bulk samples) and outlined a (non-JORC
compliant) historical mineralised zone estimate of 159Mt
averaging 1.045% Ni and 0.06% Co, over two separate deposits,
to a depth of only about 6 metres. Since then the project has been
relatively un-touched.
Axiom’s Court Battle for Ownership: The Japanese giant
Sumitomo Metal Mining (SMM) spent millions challenging
Axiom’s 80% ownership of the project in a three year court battle,
which is clear indication that the project is of great significance to
such a major company. Axiom scored a resounding win over
SMM with judgement in the court battle handed down on 24
September 2014. The court handed down an order for a
continuing permanent injunction restraining SMM from interfering
in Axiom’s mining, prospecting or other business interests in
Solomon Islands. SMM has appealed the ruling (likely to be heard
in 1Q15), but we consider it has little chance of success, given
the initial ruling stating that SMM’s actions were an abuse of the
court process.
Axiom’s Strategy: AVQ has spent many years developing
strong relationships with the customary landowners including
forming a JV whereby the landowners have a 20% interest in the
Isabel Nickel Project. AVQ has developed key relationships and
demonstrated a strong commitment to social responsibility The
CEO is based in the Solomon Islands. He has an "open door”
policy which has put him close to the people, and this has helped
smooth the way for the government and community support of all
AVQ's projects in the Solomon Islands.
Size and Significance of Isabel Nickel Project: The original
159Mt @1.045% Ni non-JORC historical estimate of
mineralisation established by Kaiser Engineers was based on a
surface resource of shallow predominantly limonitic material to an
average depth of only ~6m. We understand that very little drilling
or test pitting extended below this depth. The initial drilling results
from AVQ’s resource confirmation program, drilling deeper into
the saprolitic zone below the limonitic zone have confirmed that
mineralisation continues into this deeper zone and as expected
the grades are significantly higher – greater than 2% Ni in two of
the four holes (see page 3). This grade increase is very significant
for DSO pricing and project economics. In addition, there are
further areas of the deposit that were not sampled by INCO or
Kaiser in their resource definition work, due to land access issues.
From the depth extensions indicated by recent drilling and further
resource areas undrilled, we believe that Isabel has the potential
to be a very large (>500Mt) high grade ore body similar to the
premium deposits in New Caledonia and Indonesia. Little wonder
that the Japanese giant Sumitomo put so much effort and
investment to try and grasp ownership of this project.
Getting Isabel into Production: AVQ will move as quickly as
possible to establish an initial ~2Mtpa DSO operation. This could
happen within 12 months. Project logistics are straightforward
with deep-water channel access close to the deposit for
RCR DECEMBER 2014
shipping/barging. The potential resource spans two separate
islands (San Isabel and San Jorge) with a deep water channel
in between. No relocation of human settlements will be
required. AVQ’s immediate task will be to continue drilling of
selected higher grade mineralised zones to confirm a modest
initial mineable reserve (e.g. 10-20Mt) on which a start-up DSO
operation could be established. It will also need to address
environmental permitting, application for and granting of a
mining lease, contractual negotiations with customers and
completion of an updated feasibility study. Progressive funding
(with emphasis on loans from potential customers, World Bank
etc rather than equity) to fund the pre-production activities will
need to be sourced.
Larger Scale Development Options: An initial ~2Mtpa DSO
operation is likely to be the first small step in AVQ’s
development of the potentially major Isabel resource. The next
stages of development will be aimed at a major expansion of
production and introducing metallurgical processing of the ore
on site to increase the value-adding, probably with an existing
nickel player as a partner. We think that this is a very sensible
approach rather than trying to go it alone. It will de-risk both
technical and capital raising risk by bringing in an established
nickel producing partner as plant owner and operator. All too
often we see junior companies trying to maintain full control
and go it alone with large scale projects, with little success.
Nickel and DSO Pricing: The nickel price and DSO prices
have eased significantly in the past four months, however our
analysis (see page 5) indicates that a significant recovery,
particularly in DSO prices, is likely in 1H15. We expect prices
to return to levels which will underpin strong profitability and
cashflow for AVQ’s proposed DSO operations.
West Guadalcanal Project (WGP): An initial scout drilling
program (2,500m) of selected epithermal gold-silver targets at
the WGP started in 4Q14. Drilling will continue into 1Q15. The
location has the right credentials - it is on a similar structure to
St Barbara’s (ASX:SBM) Gold Ridge operation in the East part
of Guadalcanal, which is based on a 2.06 Moz gold resource.
AVQ has defined a 1.5km long mineralised zone in the East of
the Taho prospect. This is the first time the epithermal targets
of this project will have been drill tested. First drill results are
due for release before the end of December 2014.
Vietnam and North Queensland Projects: Gold-focused
exploration in Vietnam (potential for Sepon style
mineralisation) and North Queensland (possible intrusionrelated gold systems) will continue with a minimal level of
activity due to the priority given to the Solomon Islands
projects.
Investment Comment: In September AVQ confirmed
majority ownership of a world class nickel asset with a low
capex route to near term production. Initial market
enthusiasm has waned in the past three months due to
easing of nickel and DSO prices and Sumitomo’s desperate
bid to appeal the court judgement regarding ownership of
Isabel, which unfortunately is confusing the issue. Hence we
now see the AVQ share price lower than it was pre court
judgement. Nevertheless, we see this as an excellent buying
opportunity since we expect a near term recovery in nickel
and DSO prices and also expect Sumitomo’s appeal to be
thrown out. 5ur valuation of A$0.057/share (range A$0.024A$0.084) is supported by the valuation of an existing DSO
producer (PSE:NIKL) whose share price has remained
strong, belying market gloom.
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
2
EQUITY RESEARCH
Map showing location of Axiom’s Solomon Islands Projects
Source: Axiom Mining
Note: The Isabel Nickel Project (80% ownership by AVQ) consists of two extensive shallow
mineralised nickel laterite zones on the islands of Santa Isabel and San Jorge. AVQ also has a
100% stake in the West Guadalcanal gold-silver-copper epithermal exploration project,
approximately 30km west of St Barbara’s Gold Ridge Mine (ASX:SBM). It is in a prolific goldcopper belt as indicated by other operating mines on the map.
The initial drilling results (two of the first four holes) from the Isabel Nickel Project
resource confirmation drilling program have confirmed high grade nickel
laterite zones (>2% Ni) particularly in the (approx. 8-20m depth) saprolitic
zone which was not fully drilled by previous explorers (INCO and Kaiser
Engineers). This signals depth extensions as well as higher grades for the
eventual resource.
Hole ID
Intersection1
Easting*
Northing*
RL
EOH
ISD14-001
ISD14-002
3.25m @ 1.14% Ni from 2.8m
2.4m @ 1.05% Ni from 3.0m
18.2m @ 1.88% Ni from 2.5m
Including 12.45m @ 2.28% Ni from 8.25m
13.4m @ 2.01% Ni from 2.4m
Including 8.4m @ 2.59% Ni from 7.5m
0578426
0578504
9066114
9066072
73.4m
77.0m
12.6m
13.0m
0578786
9066164
123.0m
30.6m
0578808
9066150
131.0m
30.0m
ISD14-003
ISD14-004
The first holes
(ISD14 -001 to
ISD14-004) were
drilled along an
access road with the
first hole located at
the edge of targeted
mineralisation and
subsequent holes
sited progressively
further into the
deposit. Drilling will
continue in 1Q15.
Source: Axiom Mining
RCR DECEMBER 2014
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
3
EQUITY RESEARCH
The project logistics at the Isabel Nickel Project are very favourable for a low
capex initial operation producing approximately 2Mtpa of direct shipping ore.
The initial Kolorosi Ridge orebody likely to be mined is shallow (surface
outcropping) and close to the proposed ore loading facility for barge transfer to
50,000t capacity vessels moored in the deep water channel. Similar logistics
exist at the other orebodies.
Source: Axiom Mining
Activities are now getting underway after the >3 year delay resulting from the court
injunction. The first step will be to drill out a high grade target zone at Kolorosi Ridge
to generate 10-20Mt of reserves to underpin the initial start-up 2Mtpa DSO operation.
AVQ is targeting first shipments in 4Q15 after the anticipated granting of a mining
licence in mid-2015.
Source: Axiom Mining
RCR DECEMBER 2014
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
4
EQUITY RESEARCH
THE NICKEL PRICE AND DIRECT SHIPPING ORE PRICES
Twelve Month Nickel Price Chart, US$/lb
The Indonesian ban on the export of unprocessed DSO laterites was the prime factor in a >30% rise in the
nickel price in 1H14. Indonesia was the biggest global supplier of these ores to China.
However due to the 3Q14 overall commodity price gloom and a rise in metal stockpiles on the LME, the nickel
price retreated in September, but is now showing signs of a strong bounce due to anticipation of a likely
supply deficit developing in 2015. We believe nickel has the potential to be one of the star commodities in
2015 and 2016 due to a developing structural deficit.
Nickel Ore – DSO – Price Chart (US$/t, YTD)
Note that the price
premium for 1.8% Ni
ore relative to 1.5% Ni
ore is at least
US$20/tonne. This
puts into perspective
the significance of
higher grade
mineralisation
indicated at >8m depth
in the recent drilling.
There is every chance
that AVQ could be
shipping 1.8% Ni DSO.
Source: Axiom Mining, Ferroalloy.net
The mid-year DSO price spike flowing from high nickel prices and the Indonesian export ban has been largely
reversed, particularly in the past three months as the nickel price has weakened. Nevertheless, the price of
direct shipping nickel ore into China is still about twice what it was in January 2014. We expect prices for
1.5% Ni ore (blue line) to bounce back strongly to at least US$60/t in 1H15 for the following reasons:
•
•
•
•
•
Chinese nickel pig iron producers have been destocking. October 2014 inventories of ore at Chinese
ports were down 17% year on year.
The approaching monsoon season in the Philippines (China’s major supplier) could significantly curtail
exports from that country.
The Indonesian Government recently confirmed that the export ban will not be lifted.
The nickel price is now in an uptrend with expectations of a deficit in 2015.
DSO prices have recently resumed an upwards trend.
RCR DECEMBER 2014
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
5
EQUITY RESEARCH
A COMPARISON WITH A LISTED NICKEL DSO PRODUCER
The graph below shows the 12-month share price (in Philippine Pesos) of Nickel Asia
Corporation, a major Philippines producer of DSO laterites shipped to China and
Japan. The share price is up by over 160% in twelve months due to the 1H14
strengthening in DSO prices caused by major supply shortages. The share price has
remained firm despite 2H14 nickel price (and DSO price) weakness. DSO prices are
predicted to further strengthen in 1H15 as Chinese stockpiles are run down.
Source: advfn.com
Nickel Asia Corp. is currently
capitalised at US$2.4bn and will
ship about 16Mt of DSO this
year. The market cap ratio is
US$149M per annual million
tonnes shipped. Applying this
ratio to AVQ’s potential 2Mtpa
initial production (1.6Mtpa AVQ
equity), and applying a 50%
risk discount suggests a
potential A$166M market cap
target for AVQ (i.e.
A$0.050/share). This does not
include future value-added
production expansion potential.
NIKL has total laterite
resources of 428Mt (Dec ’13).
The Market Cap:resources ratio
is US$5.60/t. If AVQ proves up
resources of just 100Mt then
applying the same ratio
(without discount) implies a
US$560M (A$682M) market
capitalisation.
RCR DECEMBER 2014
Nickel Asia Corporation
PSE:NIKL
Share Price (PHP): *
Share Price (US$)
Share on Issue (M):
Market Cap (US$M)
43.90
0.95
2519
2395
Forecast DSO Production (CY14) (Mt): **
16.0
Market Cap per Mt DSO produced annually (US$M /Mtpa):
149.4
* Share price as at 16 December 2014, exchange rate US$/PHP = 44.59
** Production is stated in million w et metric tonnes per annum.
Implied Value of AVQ 2Mtpa DSO operation
Implied value of 2Mtpa DSO Production (US$m):
Implied value of 2Mtpa DSO Production (A$m)*:
* US$/A$=0.90 long term
Implied value 2Mtpa - 30% risk discount
Implied value 2Mtpa - 50% risk discount
Implied value 2Mtpa - 80% risk discount
298.8
332.0
A$m
232.4
166.0
66.4
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
cents/share
0.070
0.050
0.020
6
EQUITY RESEARCH
CORPORATE VALUATION AND DSO PROJECT SUMMARY
AXIOM MINING LIMITED - VALUATION
Base Case
60.00
0.90
Valuation Sensitivity
DSO Prices
(Low)
(High)
45.00
75.00
0.90
0.90
Valuation Basis
A$M
A$M
A$M
After tax NPV @ 10% (basis: 5 year DSO production) discounted by 30%.
Based on nominal valuation of PSE:NIKL production, discounted by 80%
Early stage exploration - RCR estimate
Early stage exploration - RCR estimate
Early stage exploration - RCR estimate
58.9
132.4
3.0
2.0
2.0
198.3
19.4
43.6
3.0
2.0
2.0
70.0
127.8
172.2
3.0
2.0
2.0
306.9
0.8
20.4
0.0
0.8
20.4
0.0
0.8
20.4
0.0
Liabilities
- Debt - Lease Liabilities (est Dec '14)
- Corporate (NPV @ 5%)
Sub Total
1.7
7.8
11.7
1.7
7.8
11.7
1.7
7.8
11.7
AVQ NET ASSET VALUE
210.0
81.7
318.6
Capital Structure
Shares on Issue (M)
Options (M)
Cash on Coversion of options
3338
562
11.2
3338
562
11.2
3338
562
11.2
0.063
0.057
0.024
0.024
0.095
0.085
Assumptions
DSO Price (CIF China)
Long Term Exchange Rate
Key Projects
Equity
+ Isabel Nickel Project (Solomons) DSO 1
+ Isabel Nickel Project - Long Term 2
+ West Guadalcanal Gold Project
+ Vietnam Exploration Properties
+ Queensland Exploration Properties
Sub Total
Other Assets
+ Cash (est Dec '14)
+ Value of Tax Losses
+ Hedging
: US$/wet tonne
: A$/US$
80%
80%
100%
72%/63%
100%
3
AVQ NET ASSET VALUE PER SHARE
AVQ NET ASSET VALUE DILUTED
:A$/share
:A$/share fully diluted
Valuation Notes
1 See DSO Project assumptions in the table below. See als o graph on following page showing project NPV s ensitivity to DSO prices. NPV risk-discounted by 30% due to project status.
2 Future Production Bas e Case: 10Mtpa assumed, valued at US$149/Mtpa (current PSE:NIKL production valuation), dis counted by 80% for project uncertainty and likely equity sell-down.
3 Assumes 30% tax rate
ISABEL NICKEL PROJECT SUMMARY *
INITIAL FAST TRACK DSO MINING AND SHIPPING - 5 YEAR MINE LIFE
MINEABLE RESOURCE ESTIMATES
Assumed Life of Mine Resources
Initial high grade DSO ore
DSO Ore
Mt
Nickel
%
Iron
%
Contained
kt Ni
10.5
1.50
20.00
157.5
Note: This assumed resource only relates to an initial small scale 5 year DSO operation.
We expect an eventual resource >100Mt to be confirmed with further drilling.
MINING METHOD
Shallow open pit - free digging
Open pit strip ratio:
zero pre-stripping required - ore is outcropping at surface.
PROCESS METHOD
Direct shipping of laterite ore
PRODUCTION RATE
:Mtpa ore
2.0
CAPITAL COSTS
:US$M
%
25.0
5.0
Capex to establish shallow mining and ship loading
Sustaining capital (% of initial capex)
RECOVERY - NICKEL
:%
100
Direct shipping ore - no recovery factor applied
LOM AVERAGE OPERATING COSTS (C1)
:US$/t
:US$/t
:US$/t
:%
:%
:Years
:Quarter
15.00
3.00
17.00
30.0
3.0
5
4Q15
Mining and loading costs
Overheads
Shipping costs to N China (basis 50,000t shipments)
Probable 3-5 year tax holiday for export projects
Mines and Minerals Amendement Bill (2014)
Based on initial fast track DSO operation only
Approximately 12 months required to commence DSO
TAX (SOLOMON ISL)
ROYALTY (SOLOMON ISL)
MINE LIFE
COMMISSION DATE
* These figures are preliminary in nature and are intended to provide only a general indication of project potential scale and econom ic robustness. The assumptions above have been inputted into our base case
financial m odel for the proosed initial DSO operation at Isabel.
RCR DECEMBER 2014
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
7
EQUITY RESEARCH
Based on our base case
valuation on the
previous page, the
A$0.016 per share riskdiscounted valuation of
the proposed 2Mtpa
DSO operation is
approximately equal to
the current share price.
This is without
bringing to account the
more significant longterm expanded (and
value-added)
production potential of
the Isabel resource,
which we assess as
being worth more than
twice that value, i.e.
A$0.036/share.
AVQ Valuation Components
A$ Cents per Share (Fully dil)
0.002
0.003
0.016
0.036
Total A$0.057/share
Isabel Nickel Project DSO
Isabel Nickel Project - Long Term
Exploration Projects
Other Corporate Assets
Our DCF modelling of the initial 2Mtpa proposed DSO project (1.5% Ni) at Isabel
indicates that the project NPV is not sensitive to assumed capex. The project will
break-even at around US$40/t DSO prices and the NPV (10%) increases to A$105M at
our forecast DSO pricing of US$60/t. At that DSO price it generates approximately
A$50Mpa free cashflow to AVQ.
Isabel Project: 5 Year Initial 2Mtpa DSO Operation
After-Tax NPV - Sensitivity to DSO Price & Capex
Capex =US$25M (base case)
Capex = US$50M
300
250
RCR pre tax NPV estimated using 10% discount rate (real),
A$/US$ = 0.90 (long term).
After-Tax Project NPV (A$M)
200
150
100
50
RCR Forecast @ US$60/t
0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
-50
1.5% Ni DSO Price CIF China (US$/wmt)
-100
RCR DECEMBER 2014
Disclaimer & disclosure attached. Copyright© 2014 by RCR Pty Ltd. All rights reserved.
8
EQUITY RESEARCH
Schematic showing Isabel Nickel Project laterite profile and potential processing options
Source: Axiom Mining
Note: As Axiom progresses exploration, we expect that a JORC resource confirmation drilling
program will focus on a selected part of the mineralised zone, combined with deeper drilling
(from ~10 to 20m) to further test the potential for higher grade saprolitic laterite.
(HPAL = High Pressure Acid Leach; NPI = Nickel Pig Iron, PI = Pig Iron; FeNi = Ferro Nickel;
RKEF = Rotary Kiln Electric Furnace).
West Guadalcanal Gold Project: The trenching at Taho has defined a 1.5km long gold
mineralised zone. Trenches have indicated some large high grade pods (e.g. trench
HVTC067: 21m @ 2.96 g/t, including 1m @ 51.14 g/t Au). High grade Porgera style
epithermal mineralisation has been targeted in the initial drilling program – a recent high
resolution aeromag survey has contributed important data to assist sub-surface drill
targeting. We expect first drill results by the end of 4Q14.
Source: Axiom Mining
RCR DECEMBER 2014
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EQUITY RESEARCH
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RCR DECEMBER 2014
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