Euromax Resources — Update 21 June 2016

Euromax Resources — Update 21 June 2016

Euromax Resources

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Euromax Resources

TSX listing approval

Main board listing approval

Metals & mining

21 June 2016

Price

C$0.43

Market cap

C$50m

C$1.2813/US$

Net cash* (C$m) at end-March 2016
*Excludes liability relating to streaming agreement with Royal Gold.

0.9

Shares in issue

116.8

Free float

47%

Code

EOX

Primary exchange

TSX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.0)

(4.4)

(14.0)

Rel (local)

(14.6)

(8.0)

(10.1)

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

Formal permitting start

24 July 2016

Construction commences

H216

Analyst

Charles Gibson

+44 (0)20 3077 5724

Euromax Resources is a research client of Edison Investment Research Limited

Since our last update note, Euromax has announced a number of developments that represent a systematic de-risking of the Ilovica project, including 1) the first tranche of convertible debt funding by CCC and similar financing by the EBRD; 2) submission of the EIA to the Macedonian Ministry of Environment as the first step for its international ESIA; 3) German government confirmation of UFK eligibility for the debt financiers of Ilovica; and finally, yesterday 4) approval to move to the main board of the TSX.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

2.7

(6.6)

(7.8)

0.0

N/A

N/A

12/15

4.7

(8.4)

(7.2)

0.0

N/A

N/A

12/16e

0.1

(6.7)

(2.7)

0.0

N/A

N/A

12/17e

0.0

(37.5)

(10.0)

0.0

N/A

N/A

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

Funding and Environmental Impact Assessment (EIA)

While superficially a convertible debt funding with both the EBRD and CCC (Consolidated Contractors Company), a conversion price of C$0.40/share in both cases is both in the money currently and self-evidently designed to convert into equity. In the meantime, Euromax’s EIA submission is effectively a draft international Environmental and Social Impact Assessment (ESIA), which is also required to go through the local Macedonian process. The details of the main mining project have already been the subject of a fairly extensive consultation process with the Macedonian government. The formal permit application process will begin on 24 July, after which the government has 60 days to raise any remaining issues before a construction permit is granted.

UFK eligibility and TSX promotion

The German government’s confirmation of UFK eligibility followed a formal application by UniCredit Bank in its capacity as UFK agent for the project finance facility. It is significant in that application implicitly demonstrates due diligence on the project having been accepted by all parties involved. Finally, approval to move up to the main board of the TSX (from the TSX Venture Exchange) should enhance the company’s credibility in the Canadian market, its access to funding and the liquidity of its shares.

Valuation: C$1.05 per share

In our April update note, we valued Euromax at C$1.03/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 its definitive feasibility study on Ilovica. This remains substantially unchanged in the wake of yesterday’s announcement. Our updated valuation of C$1.05/share is solely occasioned by a change in FX rates, although it does so in conjunction with a self-evident reduction in risk. 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$50m.

Exhibit 1: Financial summary

C$'000s

2011

2012

2013

2014

2015

2016e

2017e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

2,695

4,729

96

0

Cost of Sales

0

0

0

(2,251)

(4,005)

(80)

0

Gross Profit

0

0

0

444

724

16

0

EBITDA

 

 

(2,521)

(4,973)

(5,276)

(6,366)

(7,749)

(6,541)

(7,184)

Operating Profit (before amort. and except.)

(2,611)

(5,056)

(5,375)

(6,492)

(7,917)

(6,709)

(39,555)

Intangible Amortisation

0

0

0

(21)

(19)

(11)

0

Exceptionals

(40)

59

(1,806)

(4,186)

(1,979)

0

0

Other*

(835)

(428)

(835)

4

24

0

0

Operating Profit

(3,485)

(5,425)

(8,015)

(10,695)

(9,891)

(6,720)

(39,555)

Net Interest

0

0

(17)

(127)

(434)

52

2,058

Profit Before Tax (norm)

 

 

(2,611)

(5,056)

(5,392)

(6,619)

(8,351)

(6,657)

(37,497)

Profit Before Tax (FRS 3)

 

 

(3,485)

(5,425)

(8,033)

(10,822)

(10,325)

(6,668)

(37,497)

Tax

0

(33)

(30)

(25)

(47)

(13)

0

Profit After Tax (norm)

(2,514)

(4,947)

(5,414)

(6,640)

(8,374)

(6,670)

(37,497)

Profit After Tax (FRS 3)

(3,485)

(5,458)

(8,063)

(10,847)

(10,372)

(6,681)

(37,497)

Average Number of Shares Outstanding (m)

48.0

63.4

82.6

85.3

115.8

245.0

373.1

EPS - normalised (c)

 

 

(5.2)

(7.8)

(6.6)

(7.8)

(7.2)

(2.7)

(10.0)

EPS - normalised and fully diluted (c)

 

(4.5)

(6.7)

(5.8)

(5.7)

(5.4)

(2.4)

(9.1)

EPS - (IFRS) (c)

 

 

(7.3)

(8.6)

(9.8)

(12.7)

(8.9)

(2.7)

(10.0)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

N/A

N/A

N/A

N/A

N/A

16.7

N/A

EBITDA Margin (%)

N/A

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

N/A

BALANCE SHEET

Fixed Assets

 

 

11,929

17,084

18,015

16,641

29,696

29,517

319,174

Intangible Assets

0

0

29

430

514

503

503

Tangible Assets

11,929

17,084

17,985

16,211

29,182

29,014

318,671

Investments

0

0

0

0

0

0

0

Current Assets

 

 

2,798

3,341

6,290

3,180

4,871

137,535

18,079

Stocks

0

0

0

0

0

8

0

Debtors

776

1,579

608

199

1,056

8

0

Cash

2,022

1,762

1,335

2,110

3,478

137,182

17,742

Other

0

0

4,346

871

337

337

337

Current Liabilities

 

 

(530)

(749)

(1,208)

(5,831)

(5,443)

(5,911)

(8,602)

Creditors

(530)

(749)

(1,208)

(4,996)

(5,443)

(5,911)

(8,602)

Short term borrowings

0

0

0

(835)

0

0

0

Long Term Liabilities

 

 

0

0

0

0

(15,596)

(26,164)

(231,172)

Long term borrowings

0

0

0

0

(15,596)

(26,164)

(231,172)

Other long term liabilities

0

0

0

0

0

0

0

Net Assets

 

 

14,198

19,675

23,096

13,990

13,528

134,977

97,480

CASH FLOW

Operating Cash Flow

 

 

(1,966)

(5,178)

(4,496)

(2,494)

(5,765)

(4,981)

(2,420)

Net Interest

0

0

(17)

(18)

(144)

0

0

Tax

0

0

(35)

(26)

(93)

(13)

0

Capex

(5,245)

(6,947)

(5,047)

(2,122)

(12,956)

0

(322,028)

Acquisitions/disposals

0

1,468

1,041

3,023

705

0

0

Financing

7,907

10,479

7,961

(74)

5,255

128,130

0

Dividends

0

0

0

0

0

0

0

Net Cash Flow

696

(178)

(594)

(1,711)

(12,998)

123,136

(324,447)

Opening net debt/(cash)*

 

 

(1,253)

(2,022)

(1,762)

(1,406)

(1,275)

12,118

(111,018)

HP finance leases initiated

0

0

0

0

0

0

0

Other

73

(83)

167

1,580

(395)

0

0

Closing net debt/(cash)*

 

 

(2,022)

(1,762)

(1,335)

(1,275)

12,118

(111,018)

213,429

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

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