ENK (ENK.L) Investec Securities Price: GBP 11.0 | Target: GBP 34.0 | Rec: Buy With US$33m in cash at the end of the 1Q12 and the US$7m sale of non-core investments announced in May, ENK is amply funded to complete the ongoing bankable feasibility study (BFS) on it Acoje project, due in the 3Q12.

Its cash position should be even further enhanced through today’s announcement that a Filipino mining company intends to buy into ENK’s second project, the Zambales JV, for a staged consideration of US$11m. ¢ ENK’s local partner and 60% owner of the Zambales project, Montemina Resources (MRC), has entered into an agreement with Golden Harvest Global Corporation (GHGC) to sell down 40% of itself for US$11m, in a series of staged payments: US$6m receivable within six months ($2m on signing, $2m by 15 Aug, $2m by 15 Nov), with the balance due within two years.

¢ All net funds will be available for ENK’s use, as repayment of loans previously made by ENK to MRC.

Incidentally, the transaction values ENK’s 40% interest in the Zambales JV at US$18.3m.

¢ GHGC has also entered into a mining agreement, whereby it is to provide all material and input for a nickel laterite ore mining operation, in return for 50% of profits from the sale of ore.

GHGC has also entered into a 2-yr exploration agreement for chromite and other underground minerals.

Should it proceed with any development of such, it has the option to acquire the mineral rights for US$20m or to free carry the JV to a 20% interest in any such operation.

¢ Once the Acoje BFS is completed, ENK will still have to secure the mooted c.US$200m in financing required to develop the first phase of the project’s development.

While this will not be an easy task in today’s risk-averse investment climate, the company’s good cash position leaves it well able to endure until market conditions improve.

Maintain Buy.


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