Acquisition of Beadell Resources and its Tucano mine creates new intermediate metals miner
Strong balance sheet to fund growth projects and exploration
Near-term production growth from Coricancha, with a restart decision expected next month
Large resource base with 1.4M gold equivalent ounces in measured and indicated category
Great Panther Mining (TSE:GPR) (NYSEAmerican:GPL) has become a new intermediate precious metals producer with its acquisition of Beadell Resources and its Tucano mine in Brazil, which closed in March this year.
The mine is currently the second-largest gold producer in Brazil, producing around 150,000 ounces per year from several open pits, and is sitting on a multi-million ounce deposit. The deal turns Great Panther into a 200,000 gold-equivalent ounce per year producer.
Elsewhere, the firm has assets in Mexico, where it runs the Guanajuato mine complex (which consists of two mines Guanajuato and San Ignacio), which had production of 2.6 million ounces of silver equivalent (Ag Eq) in 2018, and the Topia mine, which produced 1.5 million ounces of silver equivalent (Ag Eq) last year, and where the firm is bidding to lift processing capacity by 25% in a program of work started this January.
In Peru, the firm is evaluating the restart of the gold-silver-copper-lead-zinc Coricancha mine, which is on care and maintenance. A decision is expected in June this year. A bulk sampling program is underway to test the assumptions of a preliminary economic assessment (PEA) issued last year, which showed robust numbers and low capital costs. A re-start at Peru could add another 3M silver equivalent ounces of production per year.
Formerly, the company was known as Great Panther Silver Ltd, but now generates mainly gold (83%) rather than less than 50% previously, hence the name change.
The Tucano mine is clearly key to the firm's bid to become a large Latin American focused producer and its addition to the group's assets was felt in the recently announced first quarter results, but the firm says its contribution will increase as it improves output and reduces costs. Tucano produced 123,000 ounces in 2018 at all-in-sustaining costs of US$1,073 per ounce.
Great Panther is projecting 145,000 ounces at US$1,100 per ounce from Tucano for 2019.
As well as lifting output at Tucano, there are also plans to develop near mine exploration targets at the property. The project sits on a 1,500 sq km highly prospective land package.
This month (May) has seen the successful commissioning at Tucano of what's called the 'supplemental liquid oxygen supply system', which allows for higher-grade sulphide ore to be processed and achieve designed and budgeted gold recoveries.
The system has been operational since the start of May and has successfully processed sulfide ore at grades as high as 2 g/t (grams per ton) gold with high (94%) recoveries and production is also expected to increase during May as mill availability improves and it is turned back to full capacity.
The miner conceded it had a "weak" fist quarter across the group but that there were "improvements in the grade of ore coming exclusively from its San Ignacio mine and associated plant recoveries since the start of the second quarter.
"Our operations and geology teams remain focused on optimizing San Ignacio, as well as the dedicated exploration at the Guanajuato Mine to be able to bring it back into production next year. Topia's expansion in production and associated capacity expansion is proceeding ahead of plan," the group said in a statement.
In terms of financials, revenue was US$16.7 million in the first quarter, representing a decrease of $0.3 million or 2% compared to the first quarter of 2018 - manly attributable to the decline in metal prices and higher smelting and refining charges. The net loss came in at $9.1 million (versus a loss of $97,000 in the same period a year ago), mostly a result of acquisitions, finance and other income and a decrease in mine operating earnings.
Production costs for 1Q increased by $0.8 million compared to the first quarter of 2018.
And Coricancha could also deliver
The Coricancha project in Peru project includes a permitted and operational processing plant and gold bioleaching facility with 600t/day capacity. A preliminary economic assessment (PEA) last year showed US$8.8 million of initial capex for a project, generating average annual silver-equivalent production of 3.1 million ounces. A decision to restart or not is due next month (June).
Using base case metal prices, including gold at US$1,300 per ounce and silver at US$16.50 an ounce, the mine is estimated to generate an after-tax net present value (NPV) of US$16.6mln and an after-tax internal rate of return (IRR) of 81%. Significantly, the mine plan utilizes only 28% of the resource.
The firm aims to prioritize Tucano exploration, the exploration program at Guanajuato, and the Topia plant expansion and any restart of Coricancha will start in early 2020 if a positive decision is made.
Roth analysts upbeat
In April this year, investment bank Roth was upbeat on the stock, rating shares a repeated 'Buy' and targeting $1.80 a share (current price: $0.68)
Its valuation is based on a sum-of-the-parts NAV (net asset value) methodology using an 8% discount rate for the GMC and Topia and a 12% discount rate for Coricancha. The valuation did not include production from Tucano.
"...we expect the company to maintain focus on integrating the Tucano Gold mine in Brazil, which we view as a key value driver," said analyst Jake Sekelsky.
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