Orbis Gold Limited
OBS : ASX : A$0.62 | A$188.0M | Speculative Buy, A$0.87 ↑
Reg Spencer, +61 2 9263 2701
Investment Perspective
An updated scoping study for Natougou has revealed a far more valuable project than we had previously estimated, highlighting what was clearly an opportunistic approach from SEMAFO earlier this week. OBS is now likely in play, and a vastly improved Natougou could bring other suitors to the table, but at the same time potentially lead to improved financing options should OBS opt to develop the project on its own. Short-term financing risks, should the Greenstone financing not proceed, are temporary in our view, and with OBS now the peer group leader with obvious M&A appeal, we reiterate our SPECULATIVE BUY rating.
Investment Highlights
- OBS has released the outcomes of its updated Scoping Study for Natougou, revealing a significantly optimised project capable of producing up to ~700koz in the first 2 years of production. The key changes to project parameters versus the 2013 scoping study include 1) increased resource inventory of 13 Mt at 3.5 g/t, 2) 10% lower LOM strip ratio of 11.7:1, and 3) optimised mine design and grade profile which sees an average grade of +6 g/t in the first 2 years.
- Establishment capital estimates are mostly unchanged at US$234m with increased infrastructure costs offset by a 60% reduction in waste pre-strip costs resulting from an optimised mine design. Our slightly more conservative LOM AISC estimates fall ~2% to US$699/oz versus OBS' scoping study estimates of US$619/oz.
- The revised project parameters deliver a vastly improved project, with increased FCF (up to US$290m in year 1 alone) and rapid payback (CGAu est ~10 months) among the key highlights. Upcoming project milestones include resource upgrades (1H'15) and completion of the DFS and project permitting in mid'2015.
Reiterate SPECULATIVE BUY rating; Target revised to A$0.87/share
Following the release of the updated scoping study, we have revised our modelled production assumptions for Natougou to be in line with the study results. We have also revised our development financing assumptions for an increased price at which we assume OBS raise equity (JunQ'15, A$85m, $0.50), and left unchanged our assumption that the Greenstone Resources financing (US$20m, A$0.42/share, DecQ'14) proceeds to completion, but note the high risk to this following recent share price performance. The net impact is a significant upgrade to our target price (fully diluted NAV) to A$0.87/share from A$0.54/share.
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