Greatland Gold (GGP) has provided an update on the Pre-Feasibility Study (PFS) released by its JV partner Newcrest Mining on its Havieron gold-copper deposit in the Paterson region of Western Australia. The PFS (defined as a Stage 1 study) focuses on the high grade South East Crescent (SE Crescent) zone.
As a pre-feasibility level analysis, Newcrest’s estimates can, by definition, only consider a Mineral Reserve based on the existing published Measured & Indicated Resources within the SE Crescent, and therefore exclude huge swathes of Inferred Resources in Havieron’s “Breccia Zone”, let alone significant exploration potential at depth. As such, we believe the US$508m NPV outlined by this Stage 1 study represents just a snapshot of a portion of the ultimate value of Havieron. Higher capex has led to a small cut in our (fully expanded) NPV5% to US$3.5bn and a 12% reduction in target price to GBp 24.9p. However, with a 90km drill programme planned over the coming year, we continue to see significant 40% upside from the current share price as the full potential of Havieron remains to be revealed.
2021 a year of major progress as Havieron continues to be de-risked
The PFS outlines a sub-level open stoping (SLOS) mine plan producing 2Mtpa over a 9-year period for a total of 1.6 Moz Au and 73 Kt Cu life-of-mine production. The economics of the study show an NPV4.5% of US$508m and an IRR of 27% with an upfront capital cost of US$381m at gold and copper price assumptions of US$1,750/oz and US$8,992/tonne respectively. Concurrent studies are ongoing looking at a >3Mtpa operation, with the Stage 1 study already demonstrating this potential according to Greatland. The scope of the PFS also did not include the lower grade breccia mineralisation, as the Inferred resources in this zone require further drilling to convert to Measured & Indicated categories and add sufficient further ounces to support a bulk-tonnage operation.
Our DCF model estimates Havieron project NPV of US$3.48bn
We update our DCF model of Havieron based on an initial 3Mtpa SLOS scenario, which will form the basis of the Havieron feasibility study. We have made adjustments to the key parameters from the 2Mtpa PFS study to reflect a larger throughput scenario. We model an 11-year SLOS operation in the SE Crescent, with mining commencing in H1 2024 (mining a total of 28.1Mt), producing on average 213 koz and 9.3 Kt copper annually over the life-of-mine. We continue to assume a subsequent block caving operation will be developed within the lower grade breccia zones, with economic parameters unchanged versus our previous DCF model. Maintaining our gold and copper price assumptions at US$1,850/oz and US$8,500/t respectively, we calculate an NPV5% for Havieron of US$3.48bn, with US$1.13bn attributable to GGP.
Target price decreased to GBp24.9 per share implying 40% upside
We arrive at a target price for Greatland of US$1.18b or GBp24.9 per share, based on our DCF model for the Havieron project as well as a US$100m valuation for the remainder of Greatland’s exploration assets. We apply an NPV multiple of 1.0x to Greatland’s share of the Havieron NPV due to the unique quality of the project. The updated target price represents a 12% drop from the previous target price, driven by a significantly higher capital cost estimate versus our previous DCF model as well as the shortening of our assumed SE Crescent mine life from 20 to 11 years.
Continued progress towards first production from Havieron
The next 12 months are likely to bring an expanded SE Crescent resource arising out of a 90km growth drilling program at Havieron. The full Havieron feasibility study is expected in Q4 2022 with mining envisaged to commence in H1 2024. We view continuing news flow on the rapid progression at Havieron as well as resource upgrades as potential catalysts for a re-rating of Greatland Gold shares.
Director, Mining Research
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Director, Mining Sales
+44 (0) 207 907 2022
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