Development Of Gossan Valley Will Expand Future Production Capacity

Key Takeaways

• Strategic resource expansion projects at Gossan Valley and Golden Grove aim to enhance production flexibility and long-term revenue growth through high-grade ore development.
  
• Strengthened financial position through equity raising and debt refinancing facilitates strategic investments, reducing financial pressures and supporting revenue-driven projects.
  
• Operational, environmental, and financial challenges at Capricorn Copper and exposure to commodity price fluctuations could strain margins and affect long-term financial stability.

Catalysts

Explores, develops, and produces copper focused base and precious metals.

• The development of the Gossan Valley project, which is expected to provide production flexibility and act as a replacement high-grade ore source. This project has the potential to enhance long-term asset value and increase production capacity, thus potentially increasing future revenue and earnings.
  
• The significant progress made in water management at Capricorn Copper supports a future sustainable restart, which could unlock substantial copper resources, ultimately boosting long-term revenue and profitability.
  
• With the completion of TSF4 at Golden Grove, the company expects lower tailings deposition costs and de-risked future tailings permitting, potentially improving long-term net margins by reducing operational expenses.
  
• The equity raising and senior debt refinancing provide a strengthened balance sheet, enabling strategic investments while reducing financial pressures. This increased liquidity can directly support projects that are expected to drive revenue growth and improve earnings.
  
• The exploration activities at Golden Grove and potential developments at Xantho Extended and Gossan Valley indicate ongoing resource expansion and the discovery of additional high-grade ores, which could lead to increased mining output and, as a result, higher future revenues.

29Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming 29Metals's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -32.2% today to 2.5% in 3 years time.
• Analysts expect earnings to reach A$17.9 million (and earnings per share of A$0.02) by about April 2028, up from A$-177.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$35.8 million in earnings, and the most bearish expecting A$7.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.2x on those 2028 earnings, up from -1.1x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.69%, as per the Simply Wall St company report.

29Metals Future Earnings Per Share Growth

Risks

• The challenges in water management and environmental compliance at Capricorn Copper, including ongoing water reduction efforts, could lead to higher operating expenses and delayed project timelines, negatively impacting net margins and earnings.
  
• The reliance on wet season opportunities to release water at Capricorn Copper poses operational risks. With potential high rainfall not guaranteed, there is continued uncertainty in managing site water levels, which could impact future revenue potential.
  
• Refinancing of senior debt and the associated extension of maturities could result in higher interest expenses in the long term, reducing net margins and overall profitability, despite increased liquidity in the short term.
  
• Any delays or cost overruns related to the development of TSF4 or the Gossan Valley project could increase capital expenditure beyond planned amounts, affecting free cash flow and potentially straining the balance sheet.
  
• Exposure to fluctuations in commodity prices, particularly for copper and zinc, could result in variability in revenue despite operational successes, impacting overall financial stability and investor confidence in future earnings growth.

Valuation

• The analysts have a consensus price target of A$0.23 for 29Metals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.32, and the most bearish reporting a price target of just A$0.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$707.6 million, earnings will come to A$17.9 million, and it would be trading on a PE ratio of 29.2x, assuming you use a discount rate of 10.7%.
• Given the current share price of A$0.14, the analyst price target of A$0.23 is 37.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.