🕐26.09.13 - 09:54 Uhr

INVESTEC: LONDON MINING - MARAMPA LOM STUDY DELIVERS POSITIVE SURPRISE - HOLD




London Mining (Price: 116p | Target: 130p | Rec: Hold) London Mining today announced the results from its Marampa life of mine (LOM) study, which included a positive surprise in that production is now expected to stabilise at around 6mtpa (dry).

This is significant … 20% higher than previously expected, thereby driving down unit costs accordingly, for only a relatively modest increase in capex.

While we have lifted our risked valuation by 33% to 130p, in our opinion, this looks to have been discounted in the share price already.

We retain a Hold recommendation. * The Marampa LOM production rate is now expected to stabilise at 6dmt per annum at cash costs of $42-45/t, versus earlier expectations of 5dmt at costs below $50/t.

The capital required to reach this rate is just $40m above the $240m that had already been guided previously.

This takes total capital intensity for Marampa to $103/t, or less than half the stated industry average of $220/t. * The impact is clearly NPV accretive, driven by the extra 20% of annual production, 10% lower operating costs, 10 additional years of mine life (now 40yrs vs.

our previous assumption of 30yrs), with the only negative being the 16% higher capex, which is recovered in less than one year under the revised operating assumptions, even applying our long term iron ore price assumption of $85/t (62% Fe, FOB WA).

Notwithstanding current high debt levels (forecast gearing of +55% by year end) London Mining believes it has the cash flows and financial flexibility to meet the capex demands, and we don’t dispute this. * Our increased Price Target of 130p (previously 98p) is underpinned by our revised NPV, which still risks Marampa to 85% of our valuation, to reflect the remaining delivery risk.

Our assumptions incorporate only modestly weaker parameters than London Mining’s LOM study, assuming long-term annual production of 5.9dmt (6.4wmt) at cash costs of $47/t.

Maintain Hold.
To access the full note please click here Analyst: Hunter Hillcoat
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