Download Crusader Resources Ltd

Crusader Resources Ltd
Price: $0.14
14 June 2016
Developing High Grade Gold in Brazil
Overview: Crusader Resources Ltd (“Crusader”, “the Company”) is an
Australian mining company focused on Brazil. It operates the Posse Iron
Ore Mine (100%) in Minas Gerais state, cash flow from which is used to
advance a portfolio of exploration to development stage gold and lithium
assets. Crusader’s gold assets include the Borborema Project (100%),
located in Rio Grande do Norte state, and the Juruena Project (100%),
located in Mato Grosso state. The Company’s lithium asset is a Joint
Venture (50%) incorporating the Manga Project, located in Goias state.
RESOURCE
RESERVE
Catalysts: After securing a US$2million processing solution for Juruena,
Crusader is rapidly advancing toward a decision to mine. Targeting a
high grade, open pit / underground development, drilling is underway to
convert existing resources to ‘indicated’ classification. Pending delivery
of an Optimised Development Study at Borborema could reinforce this
‘sleeping’ asset’s long life ‘turn-key’ potential, whilst the planned ‘spin off’
of Crusader’s lithium JV is another driver in current market conditions.
Hurdles: Whilst Posse mitigates Crusader’s capital demands, the
Company remains reliant on external capital and there is no guarantee it
can procure the additional funding required to develop its gold assets.
With existing resources at Juruena classified as ‘inferred’ and
independent feasibility studies yet to be concluded, there remains
considerable uncertainty as to whether an economic mining operation
can be established.
Investment View: Crusader offers speculative exposure to gold and iron
ore markets through a diversified portfolio of operating and development
assets in Brazil. Its track record of mine development, scale of gold
resources at Borborema, and near term cash flow opportunity at Juruena
are attractive qualities. Conversion of existing ‘inferred’ resources at
Juruena into higher confidence categories, and capital demands
associated with Borborema are principal risks. With our valuation of
$0.20/share representing a premium to recent trade, we are initiating
coverage for Crusader’s ability to unlock value within its portfolio.
Asset
Method
Valuation
Per Share
Juruena
DCF
$39.1m
$0.12
Borborema
Comparables
$25.5m
$0.08
$64.6m
$0.20
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CORPORATE SUMMARY
CAS.ASX
Metals and Mining
230.4m
TICKER
INDUSTRY
SHARES ON ISSUE
OTHER SECURITIES
Options 5.2m 15c, Dec ’17
Options 11.85m 29c, Dec ’17
Options 11.23m 34c-43c, May-Aug ’17
Options 10.22m 41c-52c, Jun-Aug ’18
Options 2.5m 50c-80c, Aug ’16
MARKET CAP
$29m
$5m
$5m
$68m
CASH
DEBT
ISSUED CAPITAL
ASSET OVERVIEW
Gold Projects
TITLE
Brazil
LOCATION
Feasibility
STATUS
0.18Moz @ 12g/t (Juruena)
RESOURCE
RESERVE*
1.6Moz @1.2g/t (Borborema)
*not compliant to current JORC (2012) standard
BOARD OF DIRECTORS
CHAIRMAN
Stephen Copulos
MANAGING DIRECTOR
Robert Smakman
Paul Stephen
EXEC DIRECTOR
NON EXEC DIRECTOR
Jim Rogers
NON EXEC DIRECTOR
John Evans
NON EXEC DIRECTOR
Mauricio Ferreira
SHAREHOLDERS
25%
MANAGEMENT
8%
IFC
7%
FARJOY PTY LTD
64%
TOP 20
SHARE PRICE
0.5
Crusader Resources Valuation Summary
Sum of The Parts
Valuation: $0.20
0.4
0.3
$
EXPLORATION
Initiating Coverage
0.2
0.1
0
2014
2015
2016
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COMPANY BACKGROUND
Crusader Resources Ltd (“Crusader”, “the Company”) is an
Australian mining company focused on Brazil.
It operates the Posse Iron Ore Mine (100%) in Minas Gerais state,
cash flow from which is used to advance a portfolio of exploration to
development stage gold and lithium assets
Crusader’s gold assets include the Borborema Project (100%),
located in Rio Grande do Norte state, and the Juruena Project
(100%), located in Mato Grosso state. The Company’s lithium asset
is a Joint Venture (50%) incorporating the Manga Project, located in
Goias state.
Crusader was incorporated in October 2003, and listed on the
Australian Securities Exchange (“ASX”) in February 2004. Prior to
June 2008, the Company’s name was Crusader Holdings NL. We
estimate issued capital is currently $68million, or $0.29/share.
Project Sites
Head Office
Figure 1: Location of Crusader’s operations.
Source: wise-owl
ASSET OVERVIEW – POSSE IRON ORE MINE (100%)
The Posse Iron Ore Mine (“Posse”, “the mine”) consists of one
granted mining license, an open pit mining operation and
beneficiation plant in Minas Gerais state, approximately 30km from
the capital, Belo Horizonte. The granted license (834.705/1993)
covers an area of 1.09km2.
Crusader acquired Posse in September 2007 and advanced it from
the exploration stage into an operating mine at a total purchase and
development cost of $5.4million.
Posse Mining Licenses
Permit
Area
Interest
Status
834.705/1993
1.09km2
100%
Granted
Table 1: Posse Mining Tenement Schedule
Source: Company filings
Posse has been in commercial production since March 2013.
Reserves have not been certified. A Resource estimate was
prepared in January 2009, however the estimate is not certified to
current JORC (2012) reporting standards.
Output from the mine is marketed to a network of surrounding pig
iron smelters, which make up Brazil’s “iron quadrangle”. A sealed
highway network runs adjacent to the mine gate.
Since commissioning, we estimate the mine has generated free
cash flow exceeding $10million and an internal rate of return
exceeding 170 per cent.
Crusader has utilised earnings generated by Posse to acquire and
advance less developed assets within its portfolio.
Figure 2: Geographical setting of the Posse Mine.
Source: Company filings
Posse Iron Mine Resource Estimate, Jan 2009
Class
Tonnes
Fe
SiO2
Al2O3
Mn
P
LOI
Indicated
4.8Mt
47.3%
27.5%
1.8%
0.2%
0.02%
1.4
Inferred
31.2Mt
42.9%
36.1%
0.6%
0.2%
0.02%
0.7
Total
36.0Mt
43.5%
35.0%
0.8%
0.2%
0.02%
0.8
Table 2: JORC (2004) resource estimate for Posse mine as of Jan 2009. Note that
this Resource estimate is not compliant with current JORC (2012) reporting
standards. No allowance has been given for mine depletion.
Source: Company filings
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ASSET OVERVIEW – JURUENA GOLD PROJECT (100%)
The Juruena Gold Project (“Juruena”) consists of 21 exploration
licenses and applications located in the northwestern part of Mato
Grosso state, near its boundaries with Pará and Amazonas states.
The project covers 447km2 in a sparsely populated area. The small
city of Alta Floresta is located some 250 km east-southeast of the
property. Access is via dirt roads or light plane, with the site hosting
a gravel airstrip.
Juruena Gold Project
Permit
Multiple
Area
447km2
Interest
Status
100%
Granted &
Pending
Table 3: Juruena tenement summary.
Source: Company filings
Juruena was acquired in May 2014 from Lago Dourado Inc. (TSX:
LDN) for $C650,000 plus 2million Crusader shares. All shares
issued as part of the acquisition are subject to 12 months escrow,
and 1.5million remain to be issued, contingent on development
milestones.
Artisanal miners have been active at Juruena since the 1970’s, and
it is estimated they have collectively extracted 0.5million oz gold.
Prior to Crusader, two systematic exploration initiatives had taken
place at Juruena since the 1990’s, delivering ~44,000metres of
drilling. Collectively these campaigns represented investment
exceeding US$25million.
Subsequently, Crusader has delineated Juruena’s first certified
resource estimate. Across three prospects Crusader has defined a
JORC compliant resource of 0.23million ounces at an average
grade of 5.6g/t, classified as inferred.
The high grade
Juruena Project
is a near term
cash flow
opportunity
Juruena Resource Estimate Summary, Sep 2015
Class
Tonnes
Au (g/t)
Ounces
Inferred
1.3Mt
5.6
0.23million
Table 4: September 2015 Resource estimate for Juruena. Source: Company filings
Figure 3: Geological setting of the Juruena Project within the Juruena‐Alta Floresta
Gold Belt. Source: Company filings
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DEVELOPMENT STRATEGY
Juruena is situated on the western end of the prospective
Juruena‐Alta Floresta Gold Belt, which is estimated to have
produced ~7Moz from 40 documented discoveries since 1979.
The main project area is centred around a gold in soil anomaly
spanning 8km by 4km, the style and scale of which has been
compared to Boddington (11Moz, Western Australia) and Las
Cristinas (16Moz, Venezuela).
Whilst the scale of Crusader’s landholding and mineralised
encounters to date may warrant investigation of Juruena’s potential
to host large scale gold project, Crusader is presently focused on
prospects capable of hosting a near term, high grade mine
development.
Scoping study investigating a high grade open pit and
underground mine development is nearing completion
A 10,000metre drilling program targeting close to surface ores
formed the basis of a maiden 0.23million oz resource estimation in
September 2015.
Figure 4: Juruena Gold in soil anomaly.
Source: Company filings
The resources are defined at three prospects within 1km of one
another. A scoping study is currently underway to appraise the
technical and economic merit of a mine development, whilst
applications for trial mining licenses have been lodged.
The scoping study is appraising open pit and underground mining
scenarios involving two declines, at Dona Maria and Querosene.
Completion, alongside an upgraded resource estimate is scheduled
for H1 2016.
Juruena Resource Estimate Detailed, Sep 2015
Prospect
Tonnes
Au (g/t)
Ounces
Cut Off g/t
Dona Maria
0.19Mt
11.8
0.07million
2.5
Querosene
0.26Mt
12.3
0.1million
2.5
Crentes
0.84Mt
2.0
0.05million
1.0
Maiden resource
certified
September 2015
Table 5: Juruena Resource Estimate, Detailed. Source: Company filings
Figure 5: Aerial view of the Juruena Resources
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ECONOMICS
Juruena Operating Cost Benchmarking
Crusader is planning to develop Juruena as a high grade, open pit
and underground mining operation. Two declines, at Dona Maria
and Querosene, are being considered as part of the current scoping
study.
To support development, the Company has signed a non‐binding
option to purchase and install a refurbished plant from Brazilian
equipment supplier GNA (Minerales equipamentos e Acos
Especiais Ltda).
GNA is an existing supplier of services and products to Crusader’s
Posse mine. The plant includes three stage crushing and a single
ball mill recently purchased (second hand) by GNA. The option is
for the supply and installation on site at Juruena (turn‐key) and
comes at a cost of ~US$2million.
Asset
AISC $US/oz
Grade g/t
Location
Way Linngo
1,076
9.8
Indonesia
Palito & Sao Chico
892
9.8
Brazil
Andy Well
874
9.1
Australia
Cerro Negro
769
8.3
Argentina
Kundana
533
10.2
Australia
Average
829
Table 6: All in Sustaining Costs “AISC” reported in FY15
for operating gold mines with similar grade.
Source: wise-owl,
Option secured over ‘turn-key’ processing plant for
US$2million
The plant is capable of processing 0.1Mt pa and could support a
production rate exceeding 30,000oz pa based on Juruena’s high
grade, albeit ‘inferred’ resource component.
Whilst the Juruena Scoping Study remains subject to completion,
we have benchmarked operating costs against similarly high grade
gold mines in Table 6.
Refurbished
plant lowers
upfront capex
Figure 6: Conceptual mine plans for Dona Maria and Querosene underground
shafts. Source: Company filings
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ASSET OVERVIEW – BORBOREMA GOLD PROJECT (100%)
The Borborema Gold Project (“Borborema”) consists of 3 mining
leases and one exploration license located in Rio Grande do Norte
state. Borborema covers 85km2, approximately 155km from the
state capital, Natal.
Borborema was acquired in August 2010 for $2.4million from
privately held, MGP Ltda. It has excellent infrastructure with grid
power, on site water storage, established buildings and bitumen
road access. Natal hosts an international airport.
Borborema Gold Project
Permit
Area
Interest
Status
85Km2
100%
Granted
805.049/77
840.149/80
840.152/80
848093/2013
Table 7: Borborema tenement summary. Source:
Company filings
Artisanal miners had been active at Borborema from 1942. In 1984,
the site hosted Brazil’s first ever heap leach mining operation.
Historic production is estimated to be 0.3million oz.
During 2007, prior to its acquisition by Crusader, Borborema was
subject to a 75hole (~10,000metre) diamond drilling campaign
which formed the basis of a non JORC compliant resource
estimate.
Since acquiring Borborema, Crusader has completed a Pre
Feasibility Study into a 3Mt, 131,000oz pa mining operation, and
delineated a proved and probable Reserve in November 2012 of
43.4Mt grading 1.18g/t for 1.6million oz. Note that the Reserve
estimate is not compliant with the current JORC (2012) reporting
standards.
Borborema
represents a
long life ‘turn
key’ opportunity
Borborema Reserve Estimate, Nov 2012
Class
Tonnes
Au (g/t)
Ounces
Proved and Probable
42.4Mt
1.18
1.6million
Table 8: Reserve Estimate prepared for the Borborema Project, November 2012.
Note that the Reserve Estimate is not compliant with current JORC (2012)
reporting standards. Source: Company filings
Figure 7: Geographical overview and tenement map of the Borborema
Project. Source: Company filings
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DEVELOPMENT STRATEGY
After acquiring Borborema, Crusader investigated its potential to
host a large scale open cut mining operation. The Company
conducted over 40,000metres of drilling.
A Mineral Resource estimate was prepared in December 2011,
however this estimate is not compliant with current JORC (2012)
reporting standards. The resources were estimated to depths of
350metres over a 3km strike and remained open in all directions.
Optimised Development Study, leveraging existing PFS and
BFS works, is due for completion in H1 2016
These resource estimates formed the basis of a Pre Feasibility
Study (“PFS”), concluded in September 2011, and subsequent
Reserve estimate in November 2012, which is not compliant to
current JORC (2012) standards.
A Bankable Feasibility Study (“BFS”) was initiated, but later paused
due to significant declines in the gold price. Subsequently, Crusader
has commissioned an Optimisation Study to evaluate Borborema’s
development potential under lower gold price scenario’s, leveraging
existing PFS and BFS materials.
The Optimised Development Study is targeting a shallower Reserve
(~0.8moz) than the November 2012 estimate, which is intended to
the reduce strip ratio, capital costs, and project footprint. The
Optimised Development Study is scheduled for completion in H1
2016.
Figure 8: Juruena Gold in soil anomaly. Source: Company filings
Optimised
Development
Study pending
Completion
Figure 9: Borborema long section showing open pit design from 2011 PFS. Source:
Company filings
Figure 9:
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ECONOMICS
The 2011 PFS evaluated the technical and economic merit of a
3Mtpa open cut mining operation, producing 131,000oz pa on
average over a nine year mine life.
The PFS was based on a Resource estimate which is not compliant
with existing JORC (2012) reporting standards. Start up capital
costs were estimated to be US$169million, and operating costs to
be $US558/oz. At a gold price of $1,300/oz, Crusader considered
such an operation at Borborema was economically viable.
Borborema - 2011 PFS Parameters
Parameter
Assumption
Comment
Throughput
3Mtpa
-
Gold Production
131koz pa
LoM Average
Capex
US$169m
-
Opex
US$558/oz
-
Table 9:: Borborema 2011 PFS parameters
Source: Company filings
Optimised Development Study intends to demonstrate
economics at lower gold prices
With gold prices trading significantly lower over recent years,
Crusader has commissioned an Optimisation Study to ensure
development of Borborema is cyclically robust.
By focusing the shallowest part of Borborema’s Reserve estimate,
the Optimisation Study is expected to lower capital costs and the
overall risk profile.
In addition, the Optimisation Study can account for recently
favourable impacts stemming from a weakening in the Brazilian
currency and global energy prices.
Optimisation
Study is
targeting a
~800,000oz
Reserve
Figure 10:: Borborema 3D geological model showing upper section targeted by
Optimised Development Study. Source: Company filings
Figure 9:
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FINANCIAL PERFORMANCE
Crusader generates income from the Posse Iron Ore Mine. Since
Posse’s commissioning in March 2013, the mine has generated
cumulative revenue of exceeding $33million however income has
not been sufficient to eliminate Crusaders reliance on external
capital.
$6.25million
placement in
March
During 2015, Crusader reported revenue of $7.3million, a decline of
53 per cent on the prior year due to weaker iron ore prices. Posse
delivered a “break even” result, with the Company reporting a gross
profit of $0.05million, down from $6.2million in the prior year.
Capital demands associated with other projects saw Crusader
report a loss of $10.1million, which widened from a $4.1million loss
in the prior year.
In addition to cash flow from Posse, Crusader has funded its capital
demands via a combination of project debt and equity. As of March
2016, the Company’s borrowings stood at $5million.
The debt facility is supplied by Macquarie Bank and is secured over
by a general security agreement over the assets of the Group, and
a specific security agreement over the shares of the Australian
subsidiaries. The facility bears an interest rate margin of 8.5 per
cent over the Bank Bill Swap Rate and matures 31st December
2016.
Crusader’s most recent equity financing initiative was a $6.25million
placement at $0.10/share announced in March 2016. The
placement expanded Crusader’s shares outstanding by 28.5 per
cent. Following the March placement, we estimate issued capital
stands at $68million, or $0.29/share.
Financial Summary
Revenue CY2015
$7.3m
NPAT CY2015
($10.1m)
Cash (post placement)
$5m
Debt
$5m
Issued Capital
$68m
Table 10: Crusader Financial Summary
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VALUATION
Crusader’s investment appeal rests in the near term development
potential of its Juruena Gold Project and “turn key” optionality
provided by Borborema
We have considered the Company’s potential worth using a Sum of
the Parts (“SoTP”) approach, incorporating its Juruena and
Borborema Gold Projects. It is assumed that surplus cash flow from
Posse will be directed toward capital demands of Crusader’s gold
portfolio, hence is implicitly accounted for in our funding forecasts.
Crusaders other assets, including its Lithium Joint Venture – Third
Element Metals Pty Ltd – are not incorporated into the valuation.
Valuation
$0.20/share
Our appraisal is based on an expanded share count of 321.3million,
reflecting an additional equity funding demand of circa $10million.
We assume an AUD/USD exchange rate of 0.7 and take into
account royalties but not corporate taxes.
Our appraisal of Juruena utilises a Discounted Cash Flow (“DCF”)
methodology and arrives at a valuation of $39.1million, or
$0.12/share. Our appraisal of Borborema utilises a Comparables
methodology and arrives at a valuation of $25.5million, or
$0.08/share. Aggregating these estimates delivers a SoTP
valuation of $64.6million or $0.20/share.
Crusader Resources Valuation Summary
Asset
Method
Valuation
Per Share
Juruena
DCF
$39.1m
$0.12
Borborema
Comparables
$25.5m
$0.08
$64.6m
$0.20
Sum of The Parts
Table 11: Crusader Resources Valuation Summary
Juruena Gold Project
We have modeled a 5-6 year mining operation at Juruena focused
on the current high grade resource. It is assumed that 68 per cent
of the high grade resource is recoverable. We have modelled a
production rate of up to 30,000oz pa using a head grade of 11g/t.
Upfront capital demands are projected to be US$8million, with All In
Sustaining Costs (“AISC”) averaging US$833/oz. Applying a
US$1,250/oz gold price and a 10% discount rate yields a pre tax
Net Present Value of US$27.4million (A$39.1million, A$0.12/share).
Juruena – Input Summary
Item
Assumption
Comment
Start Up Capex
US$8million
Includes $US2m plant
Reserve
121,000oz
68% of high grade resource
Throughput
0.09Mt pa
Optioned plant capacity
AISC
US$833/oz
Wise-owl estimates
Gold Price
US$1,250/oz
~ current spot
Table 12: Juruena Valuation Inputs. Note that no Reserves are currently certified
to JORC (2012) reporting standards.
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Juruena – Output Summary
Item
Amount
Comment
Revenue
US$152m
6 Year operation at $1250/oz
Cash Flow
US$42.9m
Unlevered, Pre Tax
IRR
122%
Unlevered, Pre Tax
Net Present Value
US$27.4m
10% discount rate
A$39.1m
AUD/USD 0.7
A$0.12/share
321.3m shares
Valuation
Table 13: Juruena Valuation Outputs Summary
Borborema Gold Project
We have appraised the Borborema Gold Project utilising a
Comparables methodology. A universe of comparable companies
has been assembled which are principally engaged in the
development of gold projects in developing jurisdictions of South
America and Africa.
There are eleven relevant data points which have been considered
based on their Proved and Probable Reserves. Valuations range
between $5 and $70 per Reserve ounce.
Lithium assets
not factored into
valuation
We have utilised the 0.8million oz Reserve target incorporated into
Crusader’s Optimisation Study, and applied the median
Comparable multiple of $22.3/oz to arrive a valuation of
US$17.8million (A$25.5million; $0.08/share).
Comparables Valuation Summary
Metric
Assumption
Comment
Reserve Target
0.8million oz
2016 target
Multiple
US$22.3/oz
Comparables Median
Valuation
US$17.8million
AUD$25.5million; $0.08/share
EV/Reserve
Table 14: Borborema Valuation parameters. Note that no Reserves are currently
certified to JORC (2012) reporting standards.
80
70
60
50
40
30
20
10
-
LATAM and Africa Gold Developers
Figure 11 : Comparables utilised for Borborema valuation. Source: Bloomberg
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INVESTMENT VIEW
Crusader offers speculative exposure to gold and iron ore markets
through a diversified portfolio of operating and development assets
in Brazil.
Its track record of mine development in Brazil, scale of gold
resources at Borborema, and near term cash flow opportunity at
Juruena are attractive qualities. The operating Posse mine
mitigates capital demands across Crusader’s portfolio, whilst the
Company’s recent $6.25million equity raising should provide
sufficient funding to demonstrate the case for a mining development
at Juruena.
The Company’s ability to convert existing ‘inferred’ resources at
Juruena into higher confidence categories, and secure the larger
scale capital required to develop Borborema are principal risks.
Decision to
mine at
Juruena is a
major driver
The planned spin off of its lithium exploration joint venture presents
a catalyst given current market sentiment towards these assets.
Other drivers include a decision to mine at Juruena and delivery of
the Optimised Development Study at Borborema.
With our valuation of $0.20/share representing a premium to recent
trade, we are initiating coverage for Crusader’s ability to unlock
value within its portfolio.
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MANAGEMENT
STEPHEN COPULOS
NON EXECUTIVE CHAIRMAN
Mr. Copulos has over 30 years of experience in a variety of
businesses and investments in a wide range of industries, including
manufacturing, mining, fast food, property development and
hospitality. He has been the Managing Director of the Copulos
Group of companies, a private investment group, since 1997. Mr.
Copulos is an active global investor who brings significant business
acumen and greater diversity to the Board of Crusader.
He has been a major shareholder of Crusader for many years, and
is aligned to improving shareholder returns. Mr. Copulos has over
14 years’ experience as a company director of both listed and
unlisted public companies. He is currently the non-executive
Chairman of Black Rock Mining Limited and was a non-executive
director of Collins Foods until October 2014. Mr. Copulos is
Chairman of the Remuneration Committee and a member of the
Audit and Risk Committee
ROBERT SMAKMAN
MANAGING DIRECTOR
Mr. Smakman is an Honours graduate of Monash University and
has had a successful international career as a geologist and
manager over the past 20 years. He has been associated with a
variety of different commodities including gold, iron, uranium,
copper, silver and rare earths. He has held management roles in
various countries and has served in senior public company
management for several years. Mr. Smakman has been a resident
of Brazil since 2006, and has negotiated the purchase of all of
Crusader’s projects as well as managed their exploration,
development and operations.
PAUL STEPHEN
EXECUTIVE DIRECTOR
Mr. Stephen holds a Bachelor of Commerce from the University of
Western Australia. He has more than 20 years of experience in the
financial services industry, starting as a portfolio manager at
Perpetual Trustees in 1992 and working subsequently as a Private
Client Advisor with Porter Western and Macquarie Bank. Mr.
Stephen was a significant shareholder and Senior Client Advisor at
Montagu Stockbrokers prior to their merger with Patersons
Securities Ltd.
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MANAGEMENT
JIM ROGERS
NON EXECUTIVE DIRECTOR
Mr Rogers was the co‐founder of the highly successful Quantum
Fund, which during 1970 ‐ 1980 gained 4200% while the S&P
advanced approximately 47%. The Quantum Fund was recognised
as one of the first truly international funds. In 1998, Mr Rogers
founded the Rogers International Commodity Index.
Mr Rogers has a Bachelor degree in History from Yale University
and a BA degree in Philosophy, Politics and Economics From
Oxford University. Since 1980, he has been an occasional guest
Professor of Finance at the Columbia Business School.
JOHN EVENS
NON EXECUTIVE DIRECTOR
Mr. Evans holds a Commerce (Hons) degree from the University of
Queensland, is a Fellow of Chartered Accountants Australia & New
Zealand, and is a member of both CPA Australia and the Australian
Institute of Company Directors.
Mr. Evans is currently the Principal of a Business Broking and
Advisory practice, and advises a broad range of businesses, in both
the SME sector and larger corporate clients, on matters such as
strategic planning, marketing, governance, and financial analysis.
Prior to this, Mr. Evans held a series of executive positions in
Finance and General Management in Australian public company
groups over a 15 year period, in industries including
telecommunications, banking and insurance, superannuation and
funds management, media, hospitality and property development.
MAURICIO FERREIRA
NON EXECUTIVE DIRECTOR
Mr. Ferreira is a senior executive with more than 35 years of
experience in the natural resources and energy sectors. From 1986
to 2012, Mr. Ferreira held several positions within the Vale Group.
He has managed distinct functions from exploration to sales and
marketing in different businesses including iron ore, gold, fertilizers,
kaolin and energy.
In the early 1990´s Mr. Ferreira was actively involved in the
exploration and development of three gold mines in Brazil. More
recently he was Director of Special Projects in Sustainability and
Energy, CEO of Vale Energia Limpa (Clean Energy), Director of
Business Development at Vale Oil & Gas and Chief Executive
Officer of PPSA Kaolim Mine and CADAM S.A. Mr. Ferreira earned
a Bachelor of Science in Geology at Universidade Federal do Rio
de Janeiro and attended the Ph.D. program at the University of
Western Ontario. He has supplemented his experience with
extensive executive education at Ibmec, University of Sao Paulo,
Harvard University, Massachusetts Institute of Technology, INSEAD
and the International Institute for Management Development. Mr.
Ferreira is a member of the Audit and Risk Committee.
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ARCHIVES
RISKS
Technical Risk
Crusader has yet to certify Reserves compliant with current JORC
(2012) reporting standards. Hence there is no guarantee existing
mining operations at Posse can be sustained, or that the
Company’s gold development projects can be economically mined.
Resources presently delineated a Juruena are classified as
inferred, a category based on limited geological evidence and
sampling.
Market Risk
Gold and iron ore prices have witnessed several years of
contraction. Continuation of the trend or failure of these markets to
recover could impair the economic value of mining, exploration and
feasibility programs being implemented by Crusader.
Regulatory Risk
The Juruena and Borborema Gold Projects require further
permitting and approvals before mining operations can be
established.
Funding Risk
Whilst Crusader generates revenue from Posse, it remains reliant
on external capital to advance development of Juruena and
Borborema. There is no guarantee the Company will be able to
secure access to additional funding or on terms favourable for
existing shareholders.
Valuation Risk
Key inputs driving our appraisal of Juruena are based on estimates
which have not been verified via an independent feasibility study,
and gold prices above their 52 week average. Whilst our valuation
of Borborema is based on a multiple of Proven and Probable
Reserves, the asset does not presently host a Reserve estimate
certified to current JORC (2012) reporting standards. If Crusader’s
Reserve target failed to materialise, our appraisal of Borborema
would therefore be significantly impaired. The holding structure of
Crusader’s assets within a diversified corporate portfolio may impair
their ability to attract fair value.
Agency Risk
The Posse Mine may require a disproportionate amount of
management resources relative to its contribution toward
shareholder value. Whilst the operation may mitigate Crusader’s
funding demands – there is a risk of diluting capacity for more value
accretive initiatives.
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THE BULLS AND THE BEARS
THE BULLS SAY
•
Management have a proven track record of developing low cost,
high returning mines in Brazil
•
Income from the operating Posse mine mitigates funding
demands associated with Crusader’s development portfolio
•
Juruena represents a near term cash flow opportunity, with
Borborema offering longer term “turn key” leverage to the gold
price
•
After several years of contraction, the present situation in metal
markets may represent a cyclical low
•
Our valuation represents a premium to recent trade and does
not incorporate the Company’s planned lithium spin off
THE BEARS SAY
•
Gold mining may incur challenges outside the scope of
Crusader’s existing iron ore expertise
•
Surplus cash flow from the Posse mine has been reinvested into
assets which have yet to generate a shareholder return
•
Economic studies have not been published for Juruena and past
Feasibility works on Borborema suggest that development
requires higher gold prices than current spot markets
•
Failure of metal markets to recover from current levels could
impair the value of Crusader’s assets
•
The valuation assumes Crusader’s individual assets attract fair
value within a single corporate structure and is based on the
mining of resources presently classed as ‘inferred’
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APPENDIX – JURUENA MODEL
FY
Starting Inventory
Mined Material
Dilution
Ending Inventory
Mt
Mt
%
Mt
Total
Processed Materials
Grade
Recovery
Salable Production
Mt
g/t
%
Oz
121,746
Revenue
Royalty
Opex
Capital
$m
$m
$m
$m
152.2
-3.0
-90.7
-15.4
Pre Tax Cashflow
$m
43.0
Pre Tax NPV
Pre Tax IRR
10%
27.4
122%
AISC
$/oz
0.45
0.29
-
2017
0.45
0.01
15
0.44
2018
0.44
0.06
15
0.38
2019
0.38
0.09
15
0.29
2020
0.29
0.09
15
0.2
2021
0.2
0.09
15
0.11
2022
0.11
0.11
15
0
0.01
11
90
2,705
0.05
11
90
16,233
0.08
11
90
24,349
0.08
11
90
24,349
0.08
11
90
24,349
0.09
11
90
29,760
3.4
-0.1
-2.0
-8.0
20.3
-0.4
-12.1
-1.0
30.4
-0.6
-18.1
-1.5
30.4
-0.6
-18.1
-1.5
6.7
6.8
10.2
10.2
10.2
12.4
832.5
832.5
832.5
832.5
832.5
30.4
-0.6 -18.1 -1.5 -
37.2
0.7
22.2
1.9
Notes: Currency denomination is $US
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ARCHIVES
GLOSSARY
ARCHIVES
Increasing value of established business operations is likely to yield
share price appreciation
Spec Buy
Increasing value of a new or developing business operation is likely to
yield share price appreciation.
Hold
There exists an even balance of risks.
Sell
There is elevated risk of share price depreciation.
Stop
Our recommended, pre determined sell price, to be executed if the
share price fails to appreciate
Exploration
Crusader Resources Ltd (CAS.ASX)
May-16
Initiating Coverage
0.5
Share Price $
Buy
0.4
0.3
0.2
0.1
0
2014
A category of companies that have yet to define resources according
to JORC standards
2015
2016
ANALYST
Resource
A category of companies that have defined resources classified as
'measured' and/or 'indicated' and/or ‘inferred’ according to JORC
standards.
TIM MORRIS
Reserve
A category of companies that have defined mineral reserves
according to JORC standards.
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