Manuka’s rare gold and silver exposure seriously undervalued: report
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Special Report: A new research report on recently listed Manuka Resources has valued the company at nearly double its current share price and noted there are few investment options like it for precious metals exposure on the ASX.
Manuka (ASX: MKR), which owns the Mt Boppy gold project and the Wonawinta silver project in New South Wales’ Cobar Basin, started trading on the ASX in mid-July after completing an oversubscribed $7 million initial public offering at 20c a share.
Since listing, Manuka has seen strong share price appreciation; on Tuesday the stock was trading at 49.5c. But MST Access analyst Michael Bentley, who published a comprehensive report on the company last week, sees significantly more upside.
Using a sum-of-the parts methodology, Bentley has ascribed a fully diluted risk-weighted valuation of 94c to the company, citing the low-risk, low capex near-term cash generation from Mt Boppy and Wonawinta and strong markets for gold and silver as key factors in reaching that valuation.
“The near-term cash flow from both Mt Boppy and Wonawinta generates strong value for MKR, with significant potential upside from exploration for both extensions of mine life and increased production,” he said.
“The presence of an existing fully refurbished plant at Wonawinta gives MKR options to process both gold and silver as well as third-party processing deals.”
Manuka began producing gold from stockpiled Mt Boppy ore processed through the Wonawinta plant in April and has since transitioned to treating newly mined ore from the Mt Boppy pit at Wonawinta.
This initial phase of gold production is expected to yield 22,000-24,000 ounces, with proceeds from the sale of the gold expected to allow the company to pay down US$14 million in debt on its balance sheet in full.
From around the September quarter next year, the focus will shift to silver production.
Including stockpiles and shallow oxide material, Wonawinta contains total JORC compliant resources of 38.8 million tonnes at 42 g/t silver for 52.4 million ounces.
Within this is a higher grade component of 4.5 million tonnes at 97 g/t silver for 14 million ounces.
It is Wonawinta to which Bentley attributes the bulk of Manuka’s value. It is also the asset that makes the company stand out as an investment option.
“MKR provides the ASX’s only direct exposure to genuine near-term silver production and presents a rare investment opportunity,” Bentley said.
“The silver market, although volatile, has improving fundamentals stemming from increased industrial demand and investment appeal.”
MST Access has modelled an initial five years of production from the Wonawinta oxide project delivering 2-2.5 million ounces of silver a year at a cash cost of $16 an ounce starting from the second half of next year.
There is strong potential for production from oxide resources to be extended and for the subsequent development of deeper sulphide resources.
Both Mt Boppy and Wonawinta have been subject to very little exploration drilling below a depth of 100m, while there are plenty of prospective areas within Manuka’s broader tenement package in the Cobar Basin, which covers 1,126km2.
The Cobar Basin is one of Australia’s most prolific mineral fields and currently hosts five operating mines. Mineralisation at several of the mines in the region is characterised by getting stronger at depth.
In August, Manuka reported that drilling beneath the Mt Boppy pit had intersected 10m at 34.48 g/t Au from 57m and 14m at 14.51 g/t Au from 59m, boding well for adding to the project’s resource.
Infill drilling has also started at Wonawinta as the company seeks to grow the shallow oxide resource and convert it into a higher confidence category ahead of mining beginning next year.
Bentley said the two projects offered “enormous exploration opportunities”, both within existing mining areas and regionally.
This story was developed in collaboration with Manuka Resources, a Stockhead advertiser at the time of publishing.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.