North Qld Metal (NQM 60%) and Hermskirk Consolidated (40%) purchased the Pajingo gold mine in Dec'07. The project holds 465,000oz of gold resources. Its currently producing 5400oz/mth, or 62,000oz per annum. The mining cost is $US550/oz. Based on the companies 144mil shares at 29.5c, they are worth $33mil. The company currently has around 5 years of production left with scope to increase it. The company is currently generating $16.7mil in earnings from its 60% stake, giving it a PER of just under 3x earnings. We do however need to consider the short 5-6-year mine life vs the upside in the gold price, and possibly the discovery of additional resources. The $25mil (NQM's share $15mil) acquisition was funded from cash and the issue of shares to Newmont, so NQM currently has no borrowings. The acquisition included a 300ktpa treatment plant, included all surface plant and underground mining equipment plus 830km2 of highly prospective exploration tenements. The company will resume exploration in Jun'08. I can see a small company being able to extract extra value out of this project, plus some added resources, and an increase in the gold price. The company has a NPV of $60mil based on a 12% discount factor, current earnings of $16mil per year for 5 years, or 11.6c earnings per share. I think NQM is worth a trade off its 27c support. Gold is about to move and exploration might yield further upside. I can't see them rising above their previous high of 55c without a significant discovery.Andrew Sheldon www.sheldonthinks.com
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