Investors in Weatherly International (LON:WTI) can be encouraged that costs are under control at the Tschudi copper mine development, says City broker RFC Ambrian.
The broker, which repeats a ‘buy’ recommendation following today’s positive update, is looking forward to more positive newsflow and share price catalysts in the coming months as the project approaches a completion.
RFC Ambrian has a punchy 10p price target for the AIM quoted miner and mine developer.
Weatherly shares gained more than 10% on Monday to trade at 2.62p, as the company said the mine is on-schedule to deliver first copper in the second quarter of 2015.
Whilst reporting that construction work was now 44% complete, the company also informed investors of a more positive economic assessment of the proposed mining operation compared to 2012’s bankable feasibility study.
Minxcon, the African mining services group that also completed the bankable study, has now raised the after-tax net present value (NPV) of the project to US$137.7mln from US$105mln.
The life of mine cash costs have come down by around US$41 to US$4,226 per tonne of copper and at the same time, the mine’s breakeven price has been calculated at US$4,675 a tonne.
Minxcon concluded that the project is very robust with an IRR [internal rate of return] of 89%, based on consensus copper price forecasts.
Duncan Hughes, analyst at RFC Ambrian, in a note, said: “An encouraging aspect of the Tschudi Project so far has been that the company has progressed development with no decrease to the project economics; there have been no unforeseen increases in capex or opex.
“As the production date nears, assumptions are often more certain, so these updated numbers have meant there is less potential for operating costs to flex (other than due to FX fluctuations).”
The Ambrian analyst also points out that, in the context of the share price fall which followed Weatherly’s most recent quarterly results, today’s update on the company’s separate, current mining operation is also re-assuring for investors.
Corrective measures taken at the Central Operations have boosted production in the quarter to 6,000 tonnes of contained copper and costs are also lower as a result.
“The share price came off after the company’s last quarterly results, probably due to the high unit costs reported at its central operations,” he explained.
“Thus, it is a positive signal to send to the market that productivity rates have increased to within 1,000tpa of its annual 7,000tpa of copper production and that costs have decreased below the last reported quarter (US$3.34/lb).
“This fall was in line with management’s previous report of an immediate 10% cost reduction due to its streamlined owner-operator workforce and we expect further cost reductions.
“We continue to see significant upside potential at the central operations.”