The recent acquisition of the Hellyer gold mine and its associated 796,000 ounces of gold and 32 mln ounces of silver in tailings means that NQ could be in production within a year, and generating very sizeable sums of cash.
The trick is that this resource, though not world-beating, is situated in waste dumps, which means there are no mining costs and much of the crushing and milling has already been done.
That allows projected gross margins to run at around 56% across a 10 year mine life, on overall revenues exceeding A$1.3bn.
“The Hellyer gold mine will be a flagship project for NQ Minerals and is expected to see us transform into a near-term producer within a 12 month timeframe,” said chairman Brian Stockbridge.
“The project is expected to be producing within a short time period and offers the potential for attractive returns with a quick payback of capital.”
That much is evidenced in the way the deal has been financed.
Overall NQ will pay out A$20 mln for the acquisition of Keen Pacific Limited, the vehicle which currently owns Hellyer. A$400,000 has already been paid, with a further A$6.6 mln in cash payable on completion, with the rest accounted for by A$13 mln of short-dated loan notes issued by NQ.
The interesting aspect is that the cash element will itself be covered by a short-term A$8.5 mln loan provided by a New Zealand family office on a 12% coupon.
It’s highly unusual to see family offices putting up large sums of cash up front for acquisitions or deals in the mining sector, so the degree of certainty that the NQ team must have been able to deliver to its key backers must have been very high.
In addition, the loan notes, which come in two tranches, are set to be redeemed respectively one month and two months after the acquisition completes.
That’s because the company explicitly states it expects to be able to raise the money to redeem the loan notes prior to the shareholder meeting it has called to approve the deal, the date of which is set for 15th May.
All of this presupposes a bullish confidence on the part of the NQ directors both on the value of Hellyer and on their ability to raise finance to secure it and to bring it back into production.
Given that, it’s perhaps surprising NQ shares only moved a modest 0.5p on the NEX when the news was announced, to 7.5p.
But then again volumes were a relatively light 278,300 on the day the news was announced, and the spreads on NEX can be prohibitive.
So it seems likely that the true value inherent inside NQ is yet to manifest itself completely, and if and when the company chooses to list on any other exchanges a significant re-rating would be on the cards.
After all, NQ is now a company that holds a mining project with a post-tax net present value of A$276 mln, and has a market capitalisation of just under £13 mln. Expect that latter number to change markedly over the coming months.