Brazilian gold-copper developer overlooked
According to Raymond James Financial analyst Craig Stanley, Meridian Mining UK Societas' (TSX-MNO) Brazilian gold/copper operation will surprise the market. He believes Meridian will significantly improve the size of the "historic", fully-owned Caba??al resource. Including rising metal prices into his equation, he initiates coverage of the company with a "strong buy" recommendation and $2 per-share target price.
International miner will surprise the market with its historic asset
Headquartered in London, Meridian Mining UK Societas is developing its fully-owned Caba??al project in Brazil. Meridian has discovered gold-rich, copper-poor layers above the base metal zones. Meridian acquired an option to earn a 100 per cent interest in 2020. In the past 14 months, the company has drilled over 128 holes.
Caba??al is a volcanogenic massive sulphide (VMS) open-pit system that hosts two past-producing underground mines separated by nine kilometres. The Caba??al Mine was processed between 1987-1991, and the Santa Helena Mine was processed between 2006-2008.
To the current day, Mr. Stanley anticipates 21.7 million tonnes at 0.56 per cent copper and 0.61 grams of gold per tonne (g/t) of ore due to results from the company's drill program. He estimates 2.3 million of gold equivalent ounces (GEO) at 1.8 g/t.
The region has excellent infrastructure with roads, hydropower, bridges, water, and labour in abundance. The area is currently used for farming with flat to rolling hills topography. The project is not in the Amazon rainforest and both Caba??al and Santa Helena are brownfield sites.
Resource updates on the agenda
Meridian is aiming to publish an initial NI 43-101 (rule that governs how companies disclose scientific and technical information about mineral projects to the public in Canada) resource reading on Caba??al in the coming third quarter. This will be followed by a PFS (pre-feasibility study) in the fourth quarter; an initial resource on Santa Helena in first-quarter 2023; a resource update on Caba??al in first-half 2023; and a feasibility study in fourth-quarter 2023 incorporating open pits at both deposits feeding a mill at Caba??al, Mr. Stanley reports.
"We model the start of construction in the third quarter of 2024, and first production in first-quarter 2026, averaging 138,000 GEO at AISC (all-in sustaining costs) of US$793 per ounce over a 17-year mine life. At our long-term price forecasts of US$1,600 an ounce and US$3.50 per pound of copper, the after-tax net present value (discounted at seven per cent) is US$709 million with an IRR (internal rate of return) of 35 per cent. Pre-production capex is modeled at $300 million."
Meridian finished the first quarter of 2022 with US$7.5 million in cash, 11.5 million warrants at $0.11 that expire July 15, and 6 million warrants at $0.30 that expire in December. The most recent equity financing was in October 2021 that raised $10.4 million at $0.70 a share (no warrant).
The analyst models debt financing of US$200 million, equity financings of US$20 million for ongoing exploration, project acquisition, plus US$125 million for pre-production capex.
The company is led by Executive Chairman Gilbert Clark, formerly a Partner with Sentient Equity Partners, and president and CEO Adrian McArthur, a Portuguese-speaking geologist. Management and directors own just over seven per cent. Meridian's shares graduated from the TSX Venture to the TSX on April 4, 2022.
Craig Stanley is an equity analyst for Raymond James Financial.
This is an edited version of an article that was originally published for subscribers in the July 1, 2022, issue of Investor's Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor's Digest of Canada.
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