Euromax Resources: Funded For The Year, But Risks Remain

Euromax Resources (EOX.V) is a Canadian resource company with a strategy to become a mid-tier European gold producer by developing mining assets in Southeast Europe. Euromax’s flagship project, Ilovitza, is at the pre-feasibility stage and will require capex of US$476m to bring it into production in 2017. Euromax’s key competitive advantages relate to proximity to the European Union market and management’s considerable local operating experience. Risks relate to commodity pricing and access to finance. Based on our sum-of-the-parts analysis, we value Euromax at C$0.40 per share on a fully diluted basis.

Key advantage: Location and management
Euromax believes that its asset locations offer a distinct competitive advantage. Southeast Europe is relatively underexplored compared with the rest of Europe and is geologically prospective. The project potentially has preferential access to the European market and its proximity to Europe should result in lower transport costs. The region has well-developed infrastructure reducing the need for Euromax to invest in bespoke road, water and power systems. Euromax’s management team has considerable experience developing projects in Southeast Europe. The team was involved in the operation and development of European Goldfields and has geological and regulatory knowledge of the region.

Funded for the year, but risks remain
At end-June 2013, the group had cash of C$6.2m and no debt. The group is funded for the remainder of this year, but is likely to require additional financing of C$10-15m next year. The company’s ability to develop its assets will depend on its access to the equity market to raise cash. The project is sensitive to commodity price and market sentiment changes. The group is considering a London listing, which would provide an additional potential funding source.

Valuation: C$0.40 (on a diluted basis)
We value Euromax using a sum-of-the-parts methodology to reflect its portfolio of projects. Ilovitza is valued using a DCF, while Trun is valued on a market cap per resource ounce basis and KMC is included at book value. The valuation indicates Euromax is worth C$0.40/share relative to a share price of C$0.29. This valuation includes the full cost of financing, tax and dilution (based on debt/equity of 50%) at the corporate level. Euromax appears cheap relative to its peers on a market cap per gold-equivalent resource ounce basis, suggesting there is scope for re-rating as the projects are progressed up the value chain.

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