1 Further Reason to add Europa Metals #EUZ to your Watchlist
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1 FURTHER REASON TO ADD EUROPA METALS TO YOUR WATCHLIST

THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

EUROPA METALS #EUZ
Share Price: 0.0650p
Market Capitalisation: £3.15m

Europa Metals is an AIM listed exploration company, their lead asset is a lead-zinc-silver project located in Northern Spain.

On 30th January 2018 they completed a maiden independent JORC resource estimate showing 16Mt@6.9% of zinc equivalent (including lead credits) and 25 grams per tonne of silver containing an estimated 670,000 tonnes of Zinc, 540,000 tonnes of Lead and 13 million ounces of Silver.

1 FURTHER REASON TO ADD EUROPA METALS TO YOUR WATCHLIST

START OF SCOPING STUDY (Preliminary Economic Assessment)

On 19th June Europa Metals announced the start of their Scoping Study which will include the following: 

·      Resource optimisation of recently completed JORC 2012 Inferred resource;

·      Preliminary mine layout;

·      Mineral inventory estimation;

·      Preliminary Economic Assessment, DCF and sensitivity analysis;

·      CAPEX and OPEX parameters; and

·      Review of environmental, hydrogeological and geotechnical parameters.

 

WHAT IS A SCOPING STUDY?

A “scoping study”, is a study that includes an economic analysis of the potential viability of mineral resources taken at an early stage of the project prior to the completion of a preliminary feasibility study.

It’s the first official model the company and investors can use to evaluate the economic viability of the project.

THE VALUE CREATION CURVE OF RESOURCE COMPANIES

Below I make a comparison between Europa metals and other companies with Zinc / lead assets that are early on in their journey ie making their way from exploration to (hopefully) production.

As you can see from the red line, in the chart above, the biggest risk is at the exploration stage but its between this stage and the feasibility study where the greatest appreciation in the value of the company occurs (thick maroon / black line).

As you can see, the value of the company, generally, increases by 500% or more from exploration to the feasability study. Then from pre-feasibility to becoming an operating, revenue generating, mine rises by around only 50%.

Therefore Europa Metals is at the very start of this steep value appreciation curve.

 

CAN WE PREDICT WHAT THE SCOPING STUDY WILL REVEAL?

No but we can estimate the outcomes by looking at at a peer company, with a similar resource, who have already completed a scoping study.

The peer I am comparing Europa Metals with is Project Olza, a zinc-lead exploration company based in Poland.

At a 4% cut off Olza has has an inferred resource of 14.1 million tonnes of Zinc. Europa Metals at a 4% cut off Europa Metals have an inferred resource of 16 million tonnes of zinc.

Contained
1,028,571 tonnes (2.3bn lbs) of contained Zinc at $3000/t = $3.01bn

239,564 tonnes (528m ilbs) of contained Lead at $2300/t = $550m

Total Contained Metal at Olza = $3.56bn

Contained:
670,000 tonnes of Zinc at $3000/t = $2.11bn

540,000 tonnes of Lead at $2300/t = $1.24bn

13 million ounces of Silver at $16 /oz = $208m

Total Contained Metal Europa’s Toral = $3.56bn

Therefore the value of contained metals in the ground, are both valued at $3.56bn and both the will be not be open pit mines so costs maybe also comparable.

Olza’s pre-economic assessment (scoping study) revealed:

Worth noting is that Europa’s scoping study will involve “resource optimisation of recently completed JORC 2012 Inferred resource”.

This could means Europa Metals 16mt resource could increase.

Over the 8 year life of mine, Olza’s project will deliver $330m of free cash flow and has an NPV of $170m.

This is $41.25m (£31m) per annum.

NPV = $170m (£128m)

So just one year of free cash flow is nearly ten times the current value of Europa Metals and the NPV is 40 times its value.

Project Olza is 100% owned by Rathdowney Resources a Canadian publicly-traded company (TSXV:RTH) whose market capitalisation is C$19m (£10m) which is 3 times the value of Europa Metals.

ANOTHER COMPARISON

On 13th April 2018 Alta Zinc an ASX listed exploration company with a zinc project in Italy attracted $3m of investment from Hugh Morgan, ex head of Western Mining to develop their project which represents 19.9% of issued share capital of the company.

Their JORC resource is 3.3mt, which means Europa’s resource is 4.85 times as big.

So an equivalent investment in Europa, based on the size of their resource would be A$14.5 for 19.9%. This means it would give Europa a potential valuation of A$73m (£40m) or 12 times their current valuation.

Alta Zinc’s is valued 70% higher at A$9.5m (£5.33m). So even on this metric, if we multiply Europa’s valuation by 4.85 then their market cap should be £25.85m or 8 times their current valuation.

 

ONE MORE COMPARISON

Consolidated Zinc is an ASX listed company with an exploration project in Mexico.

They have a 1.1mt resource and are valued at A$7.27m (£4m).

Even though Europa Metals resource size it 14.5 times as big, Consolidated Zinc grades are high at 16.1% which is just over twice that of Europa’s. Therefore it’s not as simple as multiplying their market capitalisation by 14.5 times as less processing of the ore would be needed, although their resource is across 5 locations, which would raise costs.

Europa’s combined grade is 7.3% so it’s 55% lower than Consolidated Zincs.

If we reduced the tonnage size difference multiple of 14.5 by 55% we arrive at a multiple of 6.5 x A$7.27m (£4m) = £26m.

In the three comparisons above it would seem that Europa Metals could reasonably be valued at anything from £10m – £40m, which is between 3 and 12 times it current valuation.

Note, this is at their current stage of development ie the commencement of their scoping study. This valuation will increase as the project is developed further and therefore de-risked.

 

How does it fit in with my research model, C.C.A.S.S.H which you can read more about by clicking here

GREEN = POSITIVE

BLACK = NEUTRAL

RED = NEGATIVE

CAPITALISATION

At £3.15m this is a micro cap with the potential to generate value at multiples to it’s current market capitalisation especially when you consider this valuation includes their recent fundraise which was £1m (gross).

CHART

I always like a price that hasn’t rallied and at the moment the share price is close to it’s 6 months lows but with a major milestone to be revealed in Q4.

ASSETS

In their half year report to the 31st December 2017, the company had net assets of A$1.5m.

On the 22nd May 2018 they raised £1 million (before expenses) in a placing at 0.0575p.

SHAREHOLDERS

Laurence Read (Executive Director) 23,913,043 – 0.49%

Myles Campion (Technical Director) 18,514,492 – 0.38%

Evan Kirby (NED) 12,929,158 – 0.27%

African Pioneer* 130,499,858 – 2.7%

*Tiger Resources own 50.75% of African Pioneer.  Tiger Resource is an investment company in which Colin Bird is Chairman.

SIGNIFICANT MILESTONE

In Q4 of 2018 Europa will be releasing the results of their scoping study and leading up to it there will be related news updates.

HEAD HONCHOS

The management all have good experience in their specific areas.

Europa Metals are at the very start of an aggressive valuation appreciation curve. This value is generated by companies developing and de-risking their asset through exploration to achieiving a JORC resource definition, to a scoping study, to a pre-feasability to a definitive feasability study.

Before the end of this year Europa will have published their scoping study.

This will the first time investors and potential investors can properly understand the economics around their asset in Spain. If the results are comparable to the Olza Project (and there’s no reason to suggest it wouldn’t be) then their release, or even the expectation of it’s release, could bring about a serious re-rate in the region of multiples to the company’s current share price.

This maybe a bold claim but I state this only after looking at their current value of £3.15m (which includes the £1m gross cash they raised on 22nd May) and their asset. It is bigger yet of comparable grades to many of their peers to which they are valued at a fraction of. Add to this fact that the Toral the zinc-lead project is located in the 1st world country of Spain and in a friendly regional mining jurisdiction and you have the ingredients for a very interesting story.

TO ADD EUROPA METALS #EUZ TO YOUR VOX MARKETS WATCHLIST CLICK HERE AND TAP THE FOLLOW BUTTON

To read my previous blog on Europa Metals (previously known as Ferrum Crescent #FCR) click here

THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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THE CONTENT OF THIS BLOG / WEBSITE (OR CONTENT ASSOCIATED WITH IT) IS NOT INTENDED AS INVESTMENT ADVICE, IT IS FOR INFORMATION PURPOSES ONLY. YOU SHOULD TAKE PROFESSIONAL FINANCIAL ADVICE IN CONNECTION WITH, OR INDEPENDENTLY RESEARCH AND VERIFY, ANY INFORMATION THAT YOU FIND ON THIS BLOG / WEBSITE AND WISH TO RELY UPON, WHETHER FOR THE PURPOSE OF MAKING AN INVESTMENT DECISION OR OTHERWISE. WE ARE NOT REGULATED UNDER UK FINANCIAL SERVICES LAW. THE AUTHOR OF THIS BLOG MAY HOLD AN INTEREST IN THE STOCK FEATURED.

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