Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 1 Geopacific Resources (GPR) Rating: Buy | Risk: High | Price Target: $1.37 Gold – it’s a Lark. Initiation of Coverage Andrew Hines | Senior Analyst +61 3 9268 1178 [email protected]Event We initiate coverage on Geopacific Resources (GPR) with a Buy recommendation and A$1.37ps price target. Geopacific Resources is developing the Woodlark Gold Project on Woodlark Island in Papua New Guinea. The project is fully permitted and early construction has commenced. Highlights Woodlark is a standard and simple open cut mining operation and carbon-in- leach (CIL) processing plant which will produce ~100koz of gold per annum over a 13 year mine life. On our forecasts the project has a 2 year payback, an IRR of 52% and an NPV @10% of A$341m. Cash flow will be front end loaded due to higher grade and lower strip ratios in the early years of production. Woodlark Island is flat, access is relatively straightforward via sea or air (there is an existing airstrip), and the landowners are supportive, so Geopacific does not face the usual problems associated with operating in PNG. Once in production (expected in 2022), at today’s share price Geopacific will be trading on a PE multiple of just 1.3x and an EV/EBITDA multiple of 0.2x. Geopacific is one of the cheapest gold companies listed on the ASX with an EV/resource of A$15/oz compared to a sector average A$226/oz. The A$ gold price recently hit an all-time high of A$2,720/oz and we expect the US$ gold price to continue rising and peak at around US$2,000/oz in late 2022. At spot gold our NPV of the project increases to A$545m (A$1.57ps on a fully diluted basis). Woodlark has a resource of 47Mt at 1.04g/t for 1.57Moz gold and reserve of 28.9Mt @ 1.12g/t for 1.04Moz gold. There is significant exploration upside on the island and we expect to see ongoing resource upgrades. It would not surprise us to see the resource base increased to over 5Moz over time. GPR raised A$40m in late 2019 to fund early construction, which includes site clearing, road works, relocation of housing and construction of a new wharf facility. The project will require around $200m capex to first production. GPR released a Definitive Feasibility Study (DFS) in October 2018 which outlined a 13 year project with an NPV @ 8% of A$197m and IRR of 29% based on an A$ gold price of A$1,650/oz. Since the release of the DFS, early construction has commenced and the gold price has materially increased. The project is now even more attractive. Costs are very low due to the low strip ratio (3.9x life of mine, and less than 3x in the early years). All-in sustaining costs are estimated at A$1,033/oz (life of mine) and A$866/oz in the first five years. Recommendation We initiate coverage on Geopacific Resources (GPR) with a Buy recommendation and A$1.37ps price target. We have set our price target at a fully diluted valuation post an assumed A$60m equity raise at a share price of A$0.35ps. Catalysts for the stock to reach our price target include; Resolution of financing options. Delivery of the Woodlark project through the course of 2020/21. Resource upgrades following further exploration on Woodlark Island.
26
Embed
Geopacific Resources (GPR) · 2020. 11. 20. · Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 4 Geopacific Resources Key financials Profit & Loss FY19
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Shaw and Partners
0.42000 0000 000
GPR – Equity Report current as at –18/05/2020–Pg. 1
Event We initiate coverage on Geopacific Resources (GPR) with a Buy recommendation and A$1.37ps price target. Geopacific Resources is developing the Woodlark Gold Project on Woodlark Island in Papua New Guinea. The project is fully permitted and early construction has commenced.
Highlights Woodlark is a standard and simple open cut mining operation and carbon-in-
leach (CIL) processing plant which will produce ~100koz of gold per annum over a 13 year mine life. On our forecasts the project has a 2 year payback, an IRR of 52% and an NPV @10% of A$341m. Cash flow will be front end loaded due to higher grade and lower strip ratios in the early years of production.
Woodlark Island is flat, access is relatively straightforward via sea or air (there is an existing airstrip), and the landowners are supportive, so Geopacific does not face the usual problems associated with operating in PNG.
Once in production (expected in 2022), at today’s share price Geopacific will be trading on a PE multiple of just 1.3x and an EV/EBITDA multiple of 0.2x. Geopacific is one of the cheapest gold companies listed on the ASX with an EV/resource of A$15/oz compared to a sector average A$226/oz.
The A$ gold price recently hit an all-time high of A$2,720/oz and we expect the US$ gold price to continue rising and peak at around US$2,000/oz in late 2022. At spot gold our NPV of the project increases to A$545m (A$1.57ps on a fully diluted basis).
Woodlark has a resource of 47Mt at 1.04g/t for 1.57Moz gold and reserve of
28.9Mt @ 1.12g/t for 1.04Moz gold. There is significant exploration upside on
the island and we expect to see ongoing resource upgrades. It would not surprise
us to see the resource base increased to over 5Moz over time.
GPR raised A$40m in late 2019 to fund early construction, which includes site clearing, road works, relocation of housing and construction of a new wharf facility. The project will require around $200m capex to first production.
GPR released a Definitive Feasibility Study (DFS) in October 2018 which outlined a 13 year project with an NPV @ 8% of A$197m and IRR of 29% based on an A$ gold price of A$1,650/oz. Since the release of the DFS, early construction has commenced and the gold price has materially increased. The project is now even more attractive.
Costs are very low due to the low strip ratio (3.9x life of mine, and less than 3x in
the early years). All-in sustaining costs are estimated at A$1,033/oz (life of mine)
and A$866/oz in the first five years.
Recommendation We initiate coverage on Geopacific Resources (GPR) with a Buy recommendation and A$1.37ps price target. We have set our price target at a fully diluted valuation post an assumed A$60m equity raise at a share price of A$0.35ps.
Catalysts for the stock to reach our price target include;
Resolution of financing options.
Delivery of the Woodlark project through the course of 2020/21.
Resource upgrades following further exploration on Woodlark Island.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 2
Geopacific Resources Ltd. is developing the Woodlark Gold Project on Woodlark Island in PNG. First production is expected in 2022 and the operation will produce approximately 100koz of gold per annum over a 13 year mine life.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 3
Table of Contents
Geopacific Resources key financials 4
Executive Summary 5
Geopacific Resources in charts 6
Geopacific is attractively place in an attractive sector 8
Gold price 10
Geopacific Resource and Woodlark Gold Project overview 12
Woodlark Definitive Feasibility Study 13
Resources and exploration upside 14
Construction activity and progress to date 16
Woodlark financials 18
Geopacific P&L 19
Financing – balance sheet and cash flow 20
Valuation and price target 21
Key risks 22
Appendix: Key personnel 23
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 4
Geopacific Resources Key financials
Profit & Loss FY19 FY20f FY21f FY22f FY23f Company Information
Revenue 0.0 0.0 0.0 269.8 283.1 Financial Year End Date 31-Dec
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 5
Executive Summary We initiate coverage on Geopacific Resources (GPR) with a Buy recommendation and A$1.37ps price target. Geopacific Resources is developing the Woodlark Gold Project on Woodlark Island in Papua New Guinea.
Core drivers & catalysts
Woodlark is a standard and simple open cut mining operation and carbon-in-leach (CIL) processing plant which will produce ~100koz of gold per annum over a 13 year mine life. On our forecasts the project has a 2 year payback, an IRR of 52% and an NPV @10% of A$341m. Cash flow will be front end loaded due to higher grade and lower strip ratios in the early years of production.
Once in production (expected in 2022), at today’s share price Geopacific will be trading on a PE multiple of just 1.3x and an EV/EBITDA multiple of 0.2x. Geopacific is one of the cheapest gold companies listed on the ASX with an EV/resource of A$15/oz compared to a sector average A$226/oz.
The A$ gold price recently hit an all-time high of A$2,720/oz and we expect the US$ gold price to continue rising and peak at around US$2,000/oz in late 2022. At spot gold our NPV of the project increases to A$545m (A$1.57ps on a fully diluted basis).
Woodlark has a resource of 47Mt at 1.04g/t for 1.57Moz gold and reserve of 28.9Mt @ 1.12g/t for 1.04Moz gold. There is significant exploration upside on the island and we expect to see ongoing resource upgrades. It would not surprise us to see the resource base increased to over 5Moz over time.
Costs are very low due to the low strip ratio (3.9x life of mine, and less than 3x in the early years). All-in sustaining costs are estimated at A$1,033/oz (life of mine) and A$866/oz in the first five years.
Key risks
The gold price is volatile and driven as much by geopolitical events as fundamental supply and demand. As such, the price of gold is relatively difficult to forecast and the actual price may differ substantially from our forecasts.
The Woodlark Gold Project is not yet producing and there is a risk that Geopacific is unable to bring the operation in to production. The project may cost more than expected to build, and may not operate as expected.
Geopacific Resources is operating in PNG. Woodlark Island is flat, access is relatively straightforward via sea or air (there is an existing airstrip), and the landowners are supportive, so Geopacific does not face the usual problems associated with operating in PNG.
Source: Company data & Shaw and Partners analysis Source: Company data & Shaw and Partners analysis
Figure 13: Net debt and gearing (A$m, %) Figure 14: Dividends and yield (A$cps, %) – no dividend policy has
been made, but we assume a payout increasing to 50%
Source: Company data & Shaw and Partners analysis Source: Company data & Shaw and Partners analysis
0
20
40
60
80
100
120
20
18
20
19
20
20
f
20
21
f
20
22
f
20
23
f
20
24
f
20
25
f
20
26
f
20
27
f
20
28
f
20
29
f
-150
-100
-50
0
50
100
150
200
20
18
20
19
20
20
f
20
21
f
20
22
f
20
23
f
20
24
f
20
25
f
20
26
f
20
27
f
20
28
f
20
29
f
0
500
1,000
1,500
2,000
2,500
3,000
2021
f
2022
f
2023
f
2024
f
2025
f
2026
f
2027
f
2028
f
2029
f
Revenue / ozExpense / ozEBITDA / oz
-200%
-150%
-100%
-50%
0%
50%
100%
2018
2019
2020
f
2021
f
2022
f
2023
f
2024
f
2025
f
2026
f
2027
f
2028
f
2029
f
RoE (%)RoA (%)
RoIC (%)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
-500
-400
-300
-200
-100
0
100
200
2018
2019
2020
f
2021
f
2022
f
2023
f
2024
f
2025
f
2026
f
2027
f
Net Debt (A$m)
ND/ND+E (%)
0%
5%
10%
15%
20%
25%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2018
2019
2020
f
2021
f
2022
f
2023
f
2024
f
2025
f
2026
f
2027
f
2028
f
2029
f
Special dividend
2H Dividend
1H Dividend
Yield (%)
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 8
Geopacific is attractively placed in an attractive gold sector The current market turmoil is creating value opportunities across all sectors, and the gold
sector is no different. The US$ gold price has been surprisingly directionless during the
turmoil – initially down to the deflationary fears of the oil price shock, but now finding
support due to the inflationary implications of mass monetary and fiscal stimulus once the
COVID-19 lock downs are over.
The ASX gold index disconnected from the AUD gold price in Mar/Apr 2020 as every asset
class has sold off. The move into US$ pushed the A$ gold price up 20%, but the A$ gold
equities down 20%. As markets stabilise the gap is narrowing and we expect that to
continue.
Figure 15: ASX Gold Index v’s USD and AUD gold price – indexed to 1 Oct 201
Source: Factset
The following table summarises the key metrics for a selection of Australian listed gold
companies. In our view, Geopacific screens very attractively compared to its ASX peers.
Geopacific resources is one of the cheapest gold companies on the ASX on an EV/resource
basis, production costs are below average and the reserve mine life of 13 years is likely to
be significantly increased.
Figure 16: Selected Australian listed gold companies
Source: Company reports & presentations, Shaw and Partners analysis Shaw and Partners covers Newcrest (Buy, $27.65, PT $30), Evolution (Buy, $5.54, PT $3.70) and Northern Star (Buy, $13.13, PT $14.80).
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 22
Key risks As a small mining company with exposure to a single commodity and single asset we
consider an investment in Geopacific Resources to be high risk. The key risks include;
The gold price is volatile and driven as much by geopolitical events as fundamental supply and demand. As such, the price of gold is relatively difficult to forecast and the actual price may differ substantially from our forecasts.
The Woodlark Gold Project is not yet producing and there is a risk that Geopacific is unable to bring the operation in to production. The project may cost more than expected to build, and may not operate as expected.
Geopacific Resources is operating in PNG. PNG can be a difficult country in which to operate given the mountainous terrain, poor infrastructure and diverse landowner groups. However, Woodlark does not suffer from these issues. The island is flat, access is relatively straightforward via sea or air (there is an existing airstrip), and the landowners are supportive.
Geopacific is facing a significant financing challenge to develop the A$200m Woodlark project. There is a risk that capital markets are not willing to fund the project.
Forecasting future operating costs has considerable uncertainty. Our forecasts may prove to be too optimistic. If Geopacific Resources’s costs are higher than we expect then our cash flow forecasts will be too high.
Smaller companies carry more significant ‘key personnel’ risk than larger organisations. If senior management depart the company then it could delay projects or exacerbate operational risks.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 23
Appendix: Key Personnel
Board of Directors
Ian Clyne | Non-Executive Chairman
Mr Clyne has over 35 years’ experience in international banking having worked in senior
executive positions in ten countries in Asia, Oceania, Australia and Europe. He has
specialised in emerging markets and has held roles of President, Director, Managing
Director and Chief Executive Officer with universal banking operations that have extensive
branch networks and large employee bases.
Mr Clyne has successfully re-engineered banks in Indonesia, Italy, Poland and Papua New
Guinea.MrClyne held the role of Managing Director and Group CEO of Bank South Pacific
(BSP), based in Port Moresby (2008 –2013). He undertook a major transformation
program changing BSP from a typical emerging economy banking institution into an
innovative, technology driven, modern bank. Under his leadership, the bank grew from
having 400,000 accounts to over 1million in Papua New Guinea and 1.5 million across the
Pacific, including Fiji and the Solomon Islands, with a market capitalisation of $1.7 billion
at the end of his term.
Ron Heeks | Managing Director
With 30 years’ mining industry experience, Mr Heeks was a founder of Exploration and
Mining Consultants and has had previous experience with Western Mining Corporation,
Newcrest, Newmont (US) and RSG Consulting.
Mr Heeks has held senior roles in both mine management and exploration and is a former
General Manager –Technical for Straits Asia Indonesian Operations and Chief Technical
Officer for Adamus Resources Southern Ashanti Gold Operation. He has lived and worked
in various countries around the world gaining extensive experience in South-East Asia and
Indonesia in particular. Mr Heeks was appointed Managing Director of the Company on 28
March 2013 after the takeover of Worldwide Mining Projects Ltd.
Colin Gilligan | Non-Executive Director
Mr Gilligan is a mining engineer with over 25 years’ experience in the resources sector, in
Australia, South Africa, North America and Asia. He has held technical, executive and
director roles with a number of companies throughout his career including Mitsui, Thiess,
Anglo, Coalspur Mines and Resource Generation. During his career Mr Gilligan has
provided leadership to a number of operations, EPC contracts, mining contracts and
development projects across a range of commodities. He has also successfully contributed
to raising development funding in various forms.
Ian Murray | Non-Executive Director
Mr Murray is a Chartered Accountant with over 25 years’ of mining experience in senior
leadership positions, including the position of Managing Director of Gold Road Resources
Limited (Gold Road) and DRDGold Ltd. He has also held executive positions with
international Big 4 accounting firms.
Mr Murray brings a wealth of financial, corporate, project development and operational
experience to the Board. Most recently he held the role of Managing Director of Gold
Road and was instrumental in taking the Guyere Project from an exploration play through
to a fully funded 8.2mtpa gold operation that is set to produce 300koz per annum in joint
venture with Gold Fields Ltd.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 24
Executive Team
Ron Heeks | Managing Director
See bio above.
Matthew Smith | Chief Financial Officer / Company Secretary
Mr Smith has over 15 years’ experience in the resource industry across a broad range of
commodities including precious metals, industrials and bulk commodities. Mr Smith has
worked for a range of companies operating in the Asia Pacific region and most recently
held the role of Chief Financial Officer at ASX listed Kingsrose Mining Limited, with gold
operations in Indonesia. Mr Smith is a Chartered Accountant with relevant industry
experience on an array of financing transactions across debt and equity markets. Mr
Smith also brings specialist knowledge in the areas of international taxation, corporate
structuring, accounting and corporate governance. Mr Smith has previously held the role
of Company Secretary at Straits Resources Limited and is currently a Non-Executive
Director of Kula Gold Limited.
Glen Zamudio | General Manager Projects
Mr Zamudio has a strong record of operating and developing businesses in challenging
jurisdictions. Mr Zamudio has 5 years of process and engineering experience from
feasibility through to commissioning, 10 years of merchant banking experience initially as
a quantitative analyst and then in the investment banking division. From 2002, on arrival
in Australia he owned and managed private businesses for 4 years and then joined
Mawson West Limited for 8 years and held positions of Chief Financial Officer and
Company Secretary, Executive General Manager Operations and Group Executive
Commercial. Mr Zamudio holds a degree in Chemical Engineering, a Masters of Business
Administration, is a Chartered Financial Analyst and is a member of Australian Institute of
Company Directors (GAICD).
James Kerr | General Manager Geology - Consultant
Mr Kerr has over 25 years’ experience in the global mining industry, managing exploration
and mine development projects throughout Australia, Sub Sahara and Asia Pacific. His
experience also covers remote locations in the Melanesian Region including Vanuatu, The
Solomon Islands and various Islands across Indonesia. He brings specialist knowledge of
epithermal and porphyry gold system exploration, resource definition and project
development, as well as extensive global corporate management experience across a
broad range of commodities.
Mr Kerr’s experience exploring and developing porphyry and epithermal gold deposits in
the Asia-Pacific region in senior management roles for Barrick Gold Corporation, Hillgrove
Resources, Oropa, Tethyan Copper Company and Mincor Resources provides synergies to
Geopacific’s development plans on Woodlark Island. Mr Kerr holds degrees in Geology and
Mineral Economics and is a Member of the AusIMM, SEG and a Fellow of the Geological
Society of London.
Ashley Price | Manager, Community, Environment and Water
Mr Price has extensive international experience in the fields of water and environmental
management, particularly in the mining and oil and gas sectors. He has spent time with
both regulatory agencies and international consultancies, working on a wide variety of
projects across a range of environments in Australia, Mongolia, China, Kazakhstan, Liberia
and PNG. As a consultant, Mr Price has designed and managed numerous multi-
disciplinary studies for resource developments and related infrastructure projects such as
railways, roads and ports.
Mr Price holds a Science degree with majors in Environmental Science and Energy Studies,
a Masters degree in Hydrogeology and Water Management and an MBA.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 25
Rating Classification
Buy Expected to outperform the overall market
Hold Expected to perform in line with the overall market
Sell Expected to underperform the overall market
Not Rated Shaw has issued a factual note on the company but does not have a recommendation
Risk Rating
High Higher risk than the overall market – investors should be aware this stock may be speculative
Medium Risk broadly in line with the overall market
Low Lower risk than the overall market
RISK STATEMENT: Where a company is designated as ‘High’ risk, this means that the analyst has determined that the risk profile for this company is
significantly higher than for the market as a whole, and so may not suit all investors. Clients should make an assessment as to whether this stock
and its potential price volatility is compatible with their financial objectives. Clients should discuss this stock with their Shaw adviser before making
any investment decision.
Shaw and Partners GPR – Equity Report current as at –18/05/2020–Pg. 26
Disclaimer
Shaw and Partners Limited ABN 24 003 221 583 (“Shaw”) is a Participant of ASX Limited, Chi-X Australia Pty Limited and the holder of Australian Financial Services Licence number 236048. ANALYST CERTIFICATION: The Research Analyst who prepared this report hereby certifies that the views expressed in this document accurately reflect the analyst's personal views about the Company and its financial products. Neither Shaw nor its Research Analysts received any direct financial or non-financial benefits from the company for the production of this document. However, Shaw Research Analysts may receive assistance from the company in preparing their research which can include attending site visits and/or meetings hosted by the company. In some instances, the costs of such site visits or meetings may be met in part or in whole by the company if Shaw considers it is reasonable given the specific circumstances relating to the site visit or meeting. As at the date of this report, the Research Analyst does not hold, either directly or through a controlled entity, securities in the Company that is the subject of this report. Shaw restricts Research Analysts from trading in securities outside of the ASX/S&P100 for which they write research. Other Shaw employees may hold interests in the company. DISCLAIMER: This report is published by Shaw to its clients by way of general, as opposed to personal, advice. This means it has been prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (“Personal Circumstances”). Accordingly, the advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not the advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of your Shaw client adviser. This report is provided to you on the condition that it not be copied, either in whole or in part, distributed to or disclosed to any other person. If you are not the intended recipient, you should destroy the report and advise Shaw that you have done so. This report is published by Shaw in good faith based on the facts known to it at the time of its preparation and does not purport to contain all relevant information with respect to the financial products to which it relates. The research report is current as at the date of publication until it is replaced, updated or withdrawn. Although the report is based on information obtained from sources believed to be reliable, Shaw does not make any representation or warranty that it is accurate, complete or up to date and Shaw accepts no obligation to correct or update the information or opinions in it. If you rely on this report, you do so at your own risk. Any projections are indicative estimates only and may not be realised in the future. Such projections are contingent on matters outside the control of Shaw (including but not limited to market volatility, economic conditions and company-specific fundamentals) and therefore may not be realised in the future. Past performance is not a reliable indicator of future performance. Except to the extent that liability under any law cannot be excluded, Shaw disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence. DISCLOSURE: Shaw will charge commission in relation to client transactions in financial products and Shaw client advisers will receive a share of that commission. Shaw, its authorised representatives, its associates and their respective officers and employees may have earned previously or may in the future earn fees and commission from dealing in the Company's financial products. RESEARCH TEAM: For analyst qualifications and experience, refer to our website at http://www.shawandpartners.com.au/about/our-
people/research
RESEARCH POLICY: For an overview of our Research policy, refer to our website at https://www.shawandpartners.com.au/media/1267/
researchpolicy.pdf
If you no longer wish to receive Shaw research, please contact your Financial Adviser to unsubscribe.