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C$0.31 C$317m
C$1.02/US$ 1,023.7m 70% YNG TSE Frankfurt
Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items.
1m 3.3 2.1
52-week high/low
Business description
Yukon-Nevada Gold operates its Jerritt Canyon mine and processing plant in north Nevada, US. It also explores for gold and base metals in the Yukon Territory at its Ketza River project. YNG is currently in the process of re-permitting the Ketza River process facility.
Next events
H112 results 15 August 2012
Analysts
Tom Hayes Charles Gibson +44(0)20 3077 5725 +44(0)20 3077 5724
areas are backfilled with concrete to maintain stability in the rock mass during mining. The SSX mine however, is increasingly being mined using the lower-cost long-hole stoping method where thickness or ore permits. Tried and trusted processing facility Because mines on the long-established Carlin Trend have become deeper, the ore has become more refractory (as oxidised gold ore near surface gets mined out first). So, when considering gold mining ventures in Nevada, the amount of available refractory processing capacity is key. Also, processing plants capable of treating refractory ores create harmful emissions that must be tightly controlled, so it can be very hard to get planning permission for these facilities in Nevada. However, YNG has a fully operational, environmentally-compliant mill, complete with industry leading scrubbing technology (used to bring mercury emissions below the US environmental threshold) and that can process both oxide and refractory ore types.
works. We see the presence of this serviceable infrastructure as a key reason to assume YukonNevada will re-develop the Ketza River mine site in the near term (see valuation section on page 6).
Total (M&I only) Source: Yukon-Nevada Gold May 2012 Corporate Presentation
Yukon-Nevadas current NI43-101 compliant reserves for its Jerritt Canyon lease area: Exhibit 3: Jerritt Canyon NI43-101 reserves, published 27 April 2012
Proven Tons (kt) 1,980.2 Tonnes (kt) 1,796.4 Grade (oz/st) 0.189 Grade (g/t) 6.49 Gold (koz) 374.8 Gold (koz) 374.8 Probable Tons (kt) 4,076.7 Tonnes (kt) 3,698.3 Grade (oz/st) 0.168 Grade (g/t) 5.77 Gold (koz) 686 Gold (koz) 686 Proven & probable Tons (kt) 6,056.9 Tonnes (kt) 5,494.8 Grand total Source: Yukon-Nevada Gold May 2012 Corporate Presentation Grade (oz/st) 0.175 Grade (g/t) 6.00 Gold (koz) 1,060.8 Gold (koz) 1,060.8 1,060.8
The companys current NI43-101 compliant resources for its Ketza River project are: Exhibit 4: Ketza River project NI43-101 resources, published 28 June 2011
Tonnes (kt) Measured Indicated Inferred Total 167.8 2,212.3 453.7 2,833.8 Grade (g/t) 5.38 5.46 4.62 5.32 Gold (koz) 29.0 389.0 67.0 485.0
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Source: Edison Investment Research and Yukon-Nevada Technical Reports for Jerritt Canyon and Ketza River
The operating parameters we have used to derive our base case valuation for Jerritt Canyon and Ketza River are given in the following exhibit: Exhibit 6: Jerritt Canyon and Ketza River operating parameters used in base case valuation
Jerritt Canyon Item Jerritt Canyon gold recovery factor Total ore tonnes Gold grade Total ounces produced over LOM Mining cost (underground) Processing cost Ore haulage Site administration Capex programme over LOM Sustaining capex per annum* Official mine life Unit % Mt g/t koz US$/st US$/st US$/st US$/st US$m US$m Value Ketza River Item Unit % Mt g/t koz US$/t US$/t US$/t US$/t US$m US$m years Value 77.0 3.71 6.00 552 2.82 12.00 5.00 3.00 25.00 5.00 2014-20
89.1 Ketza River gold recovery factor 6.05 Total ore tonnes 6.22 Gold grade 946 Total ounces produced 29.24 Mining cost 31.03 Processing cost 4.52 Surface facilities 9.30 Site administration 182.8 Assumed initial capex N/A Assumed sustaining capex per annum
Note: * Sustaining capex is assumed to be contained within the overall capex budget of US$182.8m. Source: Yukon-Nevada Gold Technical Reports on Jerritt Canyon (December 2011) and Ketza River (June 2011)
Assuming YNG pays out all its spare cash in the form of dividends, we estimate the dividend stream to investors from 2012 to 2020 will be worth US$0.56 per share in current money terms (at a discount rate of 10% to reflect general equity risk). Of note is that dividends are depressed between 2012 and 2016 due to the impact of the two forward gold purchase agreements with Deutsche Bank (see financials section on page 9 for further details). Our forecast shows production at Jerritt Canyon finishing in 2016 and only Ketza River producing gold from then on, as shown in Exhibit 5.
Exhibit 7: Edison estimate of base case EPS, fully diluted EPS and theoretical DPS, 2012-2021
0.20 $0.60 $0.50 $0.40
DDF (US$)
US$
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EPS
Dil EPS
DPS
DDF (RHS)
Based on the above data from YNGs technical reports and assuming Ketza River is brought into production 2014 (still pending a positive investment decision by the company) and gold production occurring at Jerritt Canyon as detailed in Exhibit 5, and using the cost data given in Exhibit 6, we value the company at US$0.56 (split US$0.36 for Jerritt Canyon and US$0.23 for Ketza River) per share (at 10% discount rate to reflect general equity risk). This valuation uses a decreasing gold price scale, reducing from US$1,600/oz (2012 and 2013) to US$1,350/oz thereafter.
Sensitivities
YNG is exposed to the usual geological, geotechnical, engineering, processing, socio-economic and macroeconomic (commodity) risks associated with producer-stage mining companies. In addition, we have identified the following specific quantitative risks for YNGs projects and operations: Exhibit 8: Sensitivity to long-term gold price (from 2014 onwards)
Gold US$/oz NPV (US$) Source: Edison Investment Research 1,000 0.35 1,200 0.47 1,350 0.56 1,500 0.66 1,700 0.77 1,900 0.91
One factor that could impact our sensitivity to percentage change in the cost of producing an ounce of gold is that YNG is considering moving the Smith mine at Jerritt Canyon from one being operated on a contractor basis (whereby the cost of mining and processing a tonne of ore is US$140.56) to being owner-operated. YNG believes that doing so would reduce operating costs per tonne to US$85. Adjusting our Jerritt Canyon production model for this owner-operator cost of US$85/t would equate to US$0.04 being added to our base case valuation.
2021
0.00
$0.00
Financials
In August 2011 and February 2012 YNG announced two forward gold purchase agreements with Deutsche Bank. These will allow YNG to complete an extensive programme of capital expenditure across its mines and process plant and tailings storage facility over Jerritt Canyons official 4.5-year life of mine (which officially totals US$182.8m).
have used the same gold price profile as our base case valuation. The second agreement, announced 8 February 2012, is for delivery of 27,950 ounces of gold over a 43-month term for 650 ounces per month, starting 31 March 2012 (equivalent to YNG selling each ounce for US$716) in return for an upfront payment of US$20m. After the receipt of the US$20m, the rest of the golds purchase price will be paid to YNGs wholly owned subsidiary, Queenstake Resources, on completion of the monthly gold deliveries to Deutsche Bank. It will equal the amount that the gold price exceeds US$850/oz, up to a maximum price of US$1,750/oz. For the purposes of our valuation we have used the same gold price profile as per our base case valuation. The above forward gold purchase agreements and warrant exercise for US$44.9m (as stated in our August 2011 Outlook note) mean YNG has sourced a total of over US$200m without any new dilution for the investor. This money is sufficient for YNG to complete the large majority of its recapitalisation projects at Jerritt Canyon (for example, amongst others; ramping up mine production at the SSX/Steer/Saval mines and start the development process for Starvation Canyon), which currently total US$182.8m over the current 4.5-year life of mine plan.
10
2010
IFRS 71,370 (82,943) (11,573) (18,020) (23,448) 0 (745) (963) (25,156) 251 (62,089) (105,024) (85,286) (192,018) 1,630 (83,656) (190,388) 646.7 (12.9) (8.7) (29.4) 0.0 (16.2) (25.2) (32.9) 193,457 0 828 157,936 34,693 25,784 21,280 4,504 0 0 (77,450) (68,524) (8,926) (19,543) (212,608) (15,030) (139,943) (57,635) (70,817) (19,240) 251 0 (16,292) 0 35,217 0 (32) (96) (185) 0 (89) 0
2011
IFRS 105,116 (130,975) (25,859) (34,017) (40,693) 0 0 (781) (41,474) 137 (29,676) 97,203 (70,232) 26,190 192 (70,040) 26,382 976.5 (7.2) (5.4) 2.7 0.0 (24.6) (32.4) (38.7) 302,367 0 736 231,040 70,591 25,279 14,476 8,542 2,261 0 (78,001) (78,001) 0 (37,467) (162,495) 0 (1,785) (160,710) 87,150 61,448 137 0 (100,621) 2,137 39,191 0 0 0 2,292 0 0 (31) (2,261)
2012e
IFRS 232,230 (111,298) 120,932 89,272 80,077 0 0 (781) 79,296 0 0 0 80,077 79,296 0 80,077 79,296 987.2 8.1 6.2 8.0 0.0 52.1 38.4 34.5 334,052 0 736 267,506 65,810 212,800 17,394 19,087 176,319 0 (31,612) (31,612) 0 (22,464) (160,710) 0 0 (160,710) 354,530 51,262 0 0 (45,661) 0 168,457 0 0 (0) 174,058 (2,261) 0 0 (176,319)
2013e
IFRS 327,200 (143,478) 183,721 134,125 102,862 0 0 (781) 102,081 0 0 0 102,862 102,081 0 102,862 102,081 1,023.7 10.0 7.7 10.0 0.0 56.1 41.0 31.4 383,467 0 736 316,921 65,810 268,892 23,813 26,893 218,186 0 (34,257) (34,257) 0 (22,464) (161,357) (647) 0 (160,710) 456,746 122,545 0 0 (80,678) 0 (647) 0 0 0 41,220 (176,319) 0 0 (217,539)
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Contact details Yukon-Nevada Gold Corp. 900-688 West Hastings Street Vancouver BC V6B 1P1 Canada +1 604.688.9427 www.yukon-nevadagold.com CAGR metrics EPS CAGR 2009-13 EPS CAGR 2011-13 EBITDA CAGR 2009-13 EBITDA CAGR 2011-13 Sales CAGR 2009-13 Sales CAGR 2011-13 Management team COO and joint acting president and CEO: Randy Reichert Mr Reichert has 23 years experience from his international work at various operating mines and process facilities. Most recently he was president and COO for Colossus Minerals responsible for the development of the Serra Pelada project in Brazil. Before this he was COO of Oriel Resources and Orsu Metals Corp. Vice president of exploration: Todd W Johnson Mr Johnson has over 17 years of experience in the precious and base metal resource industry and four years of geotechnical engineering experience. Mr Johnson is a qualified person as defined by the Canadian NI43-101 guidelines, and a recognised expert in the assessment of base and precious metal systems. Principal shareholders Orifer Sprott Deutsche Bank AG Marland, Francois Chafee, Robert E Schmeidler A R & Co. N/A N/A N/A N/A 140% 76% Profitability metrics ROCE 2012e Avg ROCE 2009-13 ROE 2012e Gross margin 2012e Operating margin 2012e Gross mgn/Op mgn 61% N/A 45% 52% 35% 1.5
Revenue by geography
100% US
Balance sheet metrics Gearing 2012e Interest cover 2012e CA/CL 2012e Stock turn 2012e Debtor days 2012e Creditor days 2012e N/A N/A 1.2 27 30 14
Sensitivities evaluation Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices
CFO and joint acting president and CEO: Shaun Heinrichs Mr Heinrichs has been with the company since 2008 as CFO. He has over 15 years of financial accounting experience, beginning with seven years of public practice experience with Ernst & Young where he was lead assurance or advisory manager on several large US and Canadian plcs. He has also recently joined YNGs board. Corporate secretary: Graham H Scott Mr Scott combines 28 years as a resource and corporate finance lawyer with eight years of practical experience as an exploration geologist to give clients expert, balanced advice on all resourcerelated matters. He represents many Canadian public companies listed on the TSX and TSX Venture Exchanges. (%) 20.5 12.8 12.2 8.8 1.1 0.8
Companies named in this report Anglo American, Allied Nevada Gold, Deutsche Bank
EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading international investment research company. It has won industry recognition, with awards both in Europe and internationally. The team of 90 includes over 55 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edisons research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London, New York and Sydney and is authorised and regulated by the Financial Services Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). DISCLAIMER Copyright 2012 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Yukon-Nevada Gold and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison Investment Research Limited at the time of publication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. It is not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the Financial Services Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FSAs Conduct of Business rules (COBs 3.5).
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