Euromax Resources — Update 18 April 2016

Euromax Resources — Update 18 April 2016

Euromax Resources

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Euromax Resources

Strategic relationships cemented

Fund-raising

Metals & mining

18 April 2016

Price

C$0.57

Market cap

C$67m

C$1.2853/US$

Net cash* (C$m) at end-September 2015
*Excludes liability relating to streaming agreement with Royal Gold.

2.1

Shares in issue

116.8m

Free float

47%

Code

EOX

Primary exchange

TSX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

21.3

42.5

62.9

Rel (local)

19.2

26.2

84.5

52-week high/low

C$0.58

C$0.21

Business description

Euromax Resources is a Canadian resource company that focuses on the acquisition and development of mineral-bearing assets in south-east Europe. Its flagship asset, Ilovica, in Macedonia, is the subject of a recently completed definitive feasibility study.

Next events

Final (construction) permits

June 2016

Construction commences

H216

Analyst

Charles Gibson

+44 (0)20 3077 5724

Euromax Resources is a research client of Edison Investment Research Limited

On 8 April, Euromax announced that it is to raise up to US$30m via a strategic alliance with the mining finance vehicle of Consolidated Contractors Company (CCC). The raising will be in three tranches: a C$5.2m 9% convertible loan note this month, convertible at an equity price of C$0.40/share, plus (subject to the Ilovica project proceeding and CC Mining approval) US$5m in equity in tandem with up to US$20m in the form of a 10-year subordinated, secured loan facility at Libor plus 8%.

Year end

Revenue
(C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/13

0.0

(5.4)

(6.6)

0.0

N/A

N/A

12/14

2.7

(6.6)

(7.8)

0.0

N/A

N/A

12/15e

3.7

(8.6)

(7.4)

0.0

N/A

N/A

12/16e

0.0

(8.8)

(3.6)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Consolidated Contractors Company (CCC)

CC Mining is the mining finance arm of Consolidated Contractors Company (CCC). CCC is a Lebanese group, historically focused on the oil & gas and general construction markets. Its construction function is headquartered in Athens and its lead negotiator, John Burgess, was formerly the managing director of ACC Rio Tinto Exploration (Arte) in India (inter alia). While originally a pure EPC contractor, CCC’s modus operandi is now to make equity investments associated with projects in which it is pre-engaged. In return for its investment, CCC will have the right to appoint one director to Euromax’s board and one Technical Committee member.

Further funding anticipated

In addition to its US$30m headline financing, Euromax also announced US$5m of further anticipated funding via the placing of a two-year, 12.5% convertible (convertible at C$0.40/share) to a company ‘insider’. Note that, for these purposes, the term insider should be seen in a Canadian context and interpreted to mean ‘existing shareholder’, rather than the UK meaning of the term.

Valuation: C$1.03/share

In our March outlook note, we increased our valuation of Euromax to C$1.08/share (based on the present value of the fully diluted potential dividend stream to Euromax investors discounted at 10% pa) to reflect the results of Euromax’s recently completed definitive feasibility study (DFS) on Ilovica. This month’s funding announcement implies the issue of up to 41.4m common shares in Euromax. However, this is already incorporated into our future debt and equity funding assumptions and therefore does not change our valuation, except for a slight reduction to C$1.03/share as a result of the effect of a weak US$ vs both C$ and the euro in the intervening time. In the meantime, we estimate that the Ilovica resource alone has a value in the range US$52.0-78.8m cf Euromax’s market capitalisation of c US$52m.

Exhibit 1: Financial summary

C$'000s

2011

2012

2013

2014

2015e

2016e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

2,695

3,663

0

Cost of Sales

0

0

0

(2,251)

(3,018)

0

Gross Profit

0

0

0

444

645

0

EBITDA

 

 

(2,521)

(4,973)

(5,276)

(6,366)

(7,944)

(8,589)

Operating Profit (before amort. and except.)

(2,611)

(5,056)

(5,375)

(6,492)

(8,121)

(8,766)

Intangible Amortisation

0

0

0

(21)

(8)

0

Exceptionals

(40)

59

(1,806)

(4,186)

(1,979)

0

Other*

(835)

(428)

(835)

4

12

0

Operating Profit

(3,485)

(5,425)

(8,015)

(10,695)

(10,096)

(8,766)

Net Interest

0

0

(17)

(127)

(524)

15

Profit Before Tax (norm)

 

 

(2,611)

(5,056)

(5,392)

(6,619)

(8,645)

(8,752)

Profit Before Tax (FRS 3)

 

 

(3,485)

(5,425)

(8,033)

(10,822)

(10,620)

(8,752)

Tax

0

(33)

(30)

(25)

(27)

0

Profit After Tax (norm)

(2,514)

(4,947)

(5,414)

(6,640)

(8,660)

(8,752)

Profit After Tax (FRS 3)

(3,485)

(5,458)

(8,063)

(10,847)

(10,647)

(8,752)

Average Number of Shares Outstanding (m)

48.0

63.4

82.6

85.3

116.8

245.4

EPS - normalised (c)

 

 

(5.2)

(7.8)

(6.6)

(7.8)

(7.4)

(3.6)

EPS - normalised and fully diluted (c)

 

(4.5)

(6.7)

(5.8)

(5.7)

(5.6)

(3.1)

EPS - (IFRS) (c)

 

 

(7.3)

(8.6)

(9.8)

(12.7)

(9.1)

(3.6)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

11,929

17,084

18,015

16,641

26,293

26,115

Intangible Assets

0

0

29

430

422

422

Tangible Assets

11,929

17,084

17,985

16,211

25,871

25,693

Investments

0

0

0

0

0

0

Current Assets

 

 

2,798

3,341

6,290

3,180

3,281

133,556

Stocks

0

0

0

0

305

0

Debtors

776

1,579

608

199

301

0

Cash

2,022

1,762

1,335

2,110

1,804

132,685

Other

0

0

4,346

871

871

871

Current Liabilities

 

 

(530)

(749)

(1,208)

(5,831)

(7,790)

(7,542)

Creditors

(530)

(749)

(1,208)

(4,996)

(6,955)

(6,707)

Short term borrowings

0

0

0

(835)

(835)

(835)

Long Term Liabilities

 

 

0

0

0

0

(10,568)

(21,135)

Long term borrowings

0

0

0

0

(10,568)

(21,135)

Other long term liabilities

0

0

0

0

0

0

Net Assets

 

 

14,198

19,675

23,096

13,990

11,216

130,994

CASH FLOW

Operating Cash Flow

 

 

(1,966)

(5,178)

(4,496)

(2,494)

(6,904)

(8,217)

Net Interest

0

0

(17)

(18)

0

0

Tax

0

0

(35)

(26)

(27)

0

Capex

(5,245)

(6,947)

(5,047)

(2,122)

(11,816)

0

Acquisitions/disposals

0

1,468

1,041

3,023

0

0

Financing

7,907

10,479

7,961

(74)

7,874

128,530

Dividends

0

0

0

0

0

0

Net Cash Flow

696

(178)

(594)

(1,711)

(10,873)

120,313

Opening net debt/(cash)*

 

 

(1,253)

(2,022)

(1,762)

(1,406)

(1,275)

9,598

HP finance leases initiated

0

0

0

0

0

0

Other

73

(83)

167

1,580

0

0

Closing net debt/(cash)*

 

 

(2,022)

(1,762)

(1,335)

(1,275)

9,598

(110,715)

Source: Company sources, Edison Investment Research. Note: *Net debt/(cash) includes ‘restricted cash’ from FY14.

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Research: Metals & Mining

Silver Wheaton — Update 18 April 2016

Silver Wheaton

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