RE: worth a read..6 Feb 2019 09:41
2 of 3
The fact remains that there are savings on "Cash Costs" of around 25% anticipated from KME being the operators of the mine which will help in any appraisal.
I had thought that in the longer term there was very little doubt the inclined mechanised shaft to extract from the underground mine would have come into play as will improving ore grades extracted from new stopes at depth.However my thoughts on it have now been changed by the Governments potential offer of finance. The Government's offer although possibly subject to certain criteria must have been sincere otherwise why would they have made it in writing especially and significantly when it hadn't been applied for by Prem.
Finance from the Government if significant is likely to change the mining plan. We may well see the option and timing of constructing the new underground incline being favoured and brought forward. Both the MOI and the MOM will recognise the merits of doing that I've no doubt and the best way of meneytising the asset is almost certain to feature in any finance discussions.
But that's not the only implication the finace support could have. Subject to timing and how much obviously but it could make the whole process of forming Newco virtually a "fait accompli" from a financing perspective. Viz from the 7th November 2018 RNS "The Acquisition is conditional, inter alia, on Newco raising up to US$6 million, in either debt or equity, with such assistance as may be required from Premier, at or prior to listing to support the immediate re-commencement of underground mining." It should certainly ease the pressure on that precondition at the very least.
When the time comes to reassess the value at RHA in the coming weeks I’m hoping that there will be sufficient data to place a reasonably accurate value on the mine the proposed 16.000t's/month ROM milestone in Newco being within 6 months after the re-commencement of mining operations and to value RHA the IPO point too.
The 16,000t’s/month ROM at RHA should produce at least 5,000t's Mtu’s APT/month. The underground mining rate should be around 6,000t’s/month at not less than 0.55% grade and the other 10,000t’s/month from either or both the pit and the tailings should produce grades of not less than 0 25%.Further the saving on cost with KME as the operator should reduce the break-even point to around 1,500 Mtu’s APT/month.
If all of that’s about right we’re looking at a monthly net profit of $600 and an annualised profit of over $7m at todays prices. Applying the earnings metric that would give RHA a Market Cap of $70m using a p/e ratio of 10. In the likely event of the "spin - off" and Prems current shareholders retaining 50% to 60% of RHA's value that produces a notional Market Cap of around $40m. At the current exchange rate and with 8bn shares in issue say (for simple maths) that would represent a SP contribution of 0.4p from RHA using todays criteria around the end of Q2 this year.
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