Wallbridge Mining Released A Good Preliminary Economic Assessment
The preliminary economic assessment has an after-tax net present value of $555M at a $1,750/oz gold price.
The annual production volume and operating costs are very impressive, but the initial capital cost is, as suspected, relatively high.
The size of Fenelon today together with relatively good economic figures, could make this project attractive for mid-cap producers looking for assets in good jurisdictions.
A version of this article was published in my investing group Off The Beaten Path on the day the PEA was released.
Overview
Wallbridge Mining did last week release the summary information from its preliminary economic assessment ("PEA"), based on the resource update that was published in early 2023. The results were overall above my expectations, with several numbers better than I would have thought, while the initial capital cost was slightly higher than I would have hoped for. The company did also host a conference call to go over the numbers.
I will in this article review the figures in the PEA and have a look at the company valuation. Check out my investing group Off The Beaten Path for more frequent updates on Wallbridge and other portfolio holdings.
The stock price of Wallbridge has underperformed both gold and the gold mining ETFs over the last year. That has however been the case for many development companies, so it is not necessarily because of company specific factors. Wallbridge was excluded from the GDXJ in March of 2023, which likely hasn't helped the stock price either.
Preliminary Economic Assessment
Most of the figures from the PEA were very good. The PEA is projecting 212Koz of gold production per year, with a mine life of 12.3 years, in one of the best mining regions in the world. I do think it is relatively safe to assume the project will grow over time as well, from further drilling at Fenelon or Martiniere. The PEA was only focused on Fenelon at this point.
The relatively large size of the project is one of the more attractive features, which has the potential to make it attractive to mid-size producers looking for assets in the better jurisdictions.
Cash cost is estimated to $749/oz and all-in sustaining cost is estimated to only $924/oz, which is well below the industry average according to the World Gold Council. The grade is solid at 2.73 g/t gold.
The after-tax net present value ("NPV") of the project is estimated to $555M, using a $1,750/oz gold price, and naturally significantly higher with the current spot price for gold.
The big drawback with the project is the relatively high initial capital cost, which is estimated to $496M, almost the size of the NPV figure. This leads to an IRR of 18% using a $1,750/oz gold price and slightly above 20% using the latest spot price for gold. While the IRR is ok, it is lower than many of the higher quality projects in the industry. Now, the IRR will hopefully improve some as the project grows, but it is likely to be one of the main concerns going forward.
Valuation
For the valuation of Wallbridge, I have relied on the number of shares outstanding as of March 2023. I have also included the stock units in the share count together with a very small number of stock options. The remaining options and the warrants are out-of-the-money, so they are considered anti-dilutive.
We consequently get 939.6M shares, which gives us a market cap of $103M using the latest share price. Wallbridge has no debt and a small amount of cash, which will be used for the working capital needs over the coming year.
The chart below illustrates the current market cap in relation to the net present value in a few different gold price scenarios.
There is little doubt Wallbridge is cheap, with a market cap to NPV around 0.14 using a $1,900/oz gold price. Now, with quite a while until production, the company is expected to trade with a discount to NPV, even if it also has some growth potential. However, the current extremely large discount to NPV is primarily a consequence of the very depressed market for precious metals development companies.
Conclusion
The results from the PEA were mostly above my expectations and we can now with more confidence confirm the attractive valuation of Wallbridge, even if the margin of error is still much higher in a PEA compared with a feasibility study for example. The drilling at Fenelon and Martiniere will likely grow this project going forward, but this is a solid initial economic assessment.
One doesn't have to be overly aggressive with the assumptions to see an upside of 100-200% for Wallbridge from here once the sentiment improves and if Wallbridge can continue to show its growth potential with some positive drill results.
With that said, it is also important to remember that Wallbridge is a development company and is likely to have to raise more capital in the next 6-12 months in the equity market. The more depressed the sentiment and the share price, the larger the dilution will be. So, the longer this depressed sentiment continues, the more of the potential upside might be eroded away from share dilution. That is a risk all investors should be aware of when investing in companies without revenues.
This should not be viewed as investment advice, I am simply sharing my views on the company. Disclosure: I am long Wallbridge Mining.