Highlights of the report were as follows:
ASX Code: EXS
Market Cap: A$91M
Issued Shares: 326M
Avg Mth T’over: 7.72 M
12 Mth High – Low: $0.34 - $0.11
Exco Resources (ASX: EXS) is a cashed up Copper/Gold explorer with exploration tenements in Queensland and with imminent gold production from its White Dam Gold mine in South Australia.
Exco are in the final stages of delivering a DFS on their Cloncurry Project. A successful DFS will see the company transition into a junior copper producer by late 2012. The project is targeting 25kt Cu pa for 10 years.
No rating was given by the broker.
Key Points
The White Dam Gold Project is Exco Resources’ gold only project that is currently being “fast tracked” to take advantage of the high gold price with the intention of generating near term cash flow to fund the primary focus of the company, the Cloncurry Copper Project (CCP).
The White Dam Gold Project is owned 75% Exco and 25% Polymetals. Polymetals is a privately owned company and will be the operator allowing Exco to focus on Cloncurry. Exco is targeting 50koz Au pa @ A$570 cash cost from April 2010.
On 11/9/09 Exco arranged financing with Barclays Capital for A$16m (100%) through a Gold Repayment Facility. Exco has received A$12m (75%) in deferred revenue. The loan comprises two tranches with a tenor of 2 years with a pre payment of 20,915oz, approximately equal to the first year’s production.
The CCP is Exco’s strategic long term play in Queensland, 40km from Cloncurry. Exco have grown the CCP significantly over the past 18 months and we anticipate further additions to the resources. Exco completed a prefeasibility in June 2008 for CCP on a standalone basis.
The company has now undertaken a DFS on a 2.5-3mt pa plant that would produce 25kt of Cu pa. Xstrata have left the door open for a junior to potentially feed the Ernst Henry mill during the operation’s transition to underground mining.
This could potentially provide Exco with near term cash flow should Xstrata partner.
Wilson HTM concluded:
We are encouraged by Exco electing to not become operators of White Dam. We typically view small assets with a short mine life as a distraction when a company is working towards developing a sizeable project such as the CCP.
Relinquishing operatorship to Polymetals will allow Exco to focus on the primary objective of developing a large, sustainable producing mine at CCP whilst benefiting from steady cash flow from White Dam.
Exco has just added measured resources to the CCP inventory. We look forward to further increases in resource confidence as Exco moves towards completing the DFS later in the year. In addition, we eagerly wait for a commitment to a development scenario at the CCP.
Exco has been operating in the shadow of successful and well marketed explorers such as Sandfire and Ivanhoe Australia. We see the current share price as undervaluing the company on a multiples basis and an option play into a soon-to-be junior copper producer.