Manuka share price upside expected as Mt Boppy gold project outperforms

Manuka’s stellar production performance from its Mt Boppy gold mine in the September quarter has one analyst putting forward a strong argument as to why this junior producer is way undervalued.

Manuka Resources (ASX:MKR) achieved three consecutive record months of production, revenue and profitability, which has enabled it to pay down a large chunk of debt, yet the market seems to have overlooked the significance of these milestones.

Manuka Resources (ASX:MKR) share price chart:

But it hasn’t escaped the notice of MST Access analyst Michael Bentley, which believes Mt Boppy’s strong operational performance, additional resource and exploration upside has opened further optionality for Manuka.

“As MKR soon completes what it terms its first phase of processing for Mt Boppy and moves on to processing silver stockpiles, the company will continue to explore under the Mt Boppy pit and other prospective areas in order to increase gold resources and reserves,” Bentley said.

“This could provide MKR with the option to process gold or silver through Wonawinta from CY2023, depending on which provides the higher return at the time. Mt Boppy may also present the option to construct a standalone mill.”

Bentley’s view is that Manuka shares should be trading at around 97c – a 155% increase on the price they are right now.

For the September quarter, Manuka reported $22.8m in sales revenues – up from $11.8m in the June quarter, a significant increase in net operating cash flow to $8.2m, and record gold production of 10,089 ounces – more than double the June quarter thanks to recoveries coming in well above target at 76.9%.

This string of records means Manuka now expects to pay off its remaining debt of $US9m in the first quarter of 2022 after making a $US1m repayment in October. This will see the company become debt free well ahead of the September 2022 repayment deadline.

Well and truly smashing IPO forecast

Manuka forecast at the time of its IPO that Mt Boppy would produce some 22,000-24,000 ounces of gold.

But by the end of the September quarter, total gold production for the 2022 financial year had already come in at 27,695 ounces. On top of that around 4,079 ounces was produced prior to the start of the new fiscal year.

And Bentley predicts that by the end of FY2022, Mt Boppy will have produced 41,774 ounces of gold – almost double the original prospectus forecast.

The Mt Boppy resource, meanwhile, increased to just under 50,000 ounces by the end of June 2021, up from 38,763 ounces a year earlier. Grade also increased.

“Infill drilling campaign and exploration drilling underneath the pit has led to an increase in the resource base,” Bentley said.

“The majority of the resource is measured and indicated. MKR believes there is a high chance it will be able to extract a significant portion of the resource commercially, given its accumulated knowledge of the resource and the mining methods it is using.”

Manuka plans to start in-pit and near-pit exploration at Mt Boppy once mining has finished to define further resources.

Bentley said there was a strong probability that the resources and reserves would be increased at Mt Boppy in CY2023 given previous exploration success.

Once the first phase of gold production is complete at Mt Boppy, Manuka plans to resume the production of silver doré at its Wonawinta mine.

This article was developed in collaboration with Manuka Resources, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.