Mwana Africa: Interim Results

Mwana’s interim results for the six months to 30 September, released yesterday, have shown a 13-fold increase in profit before interest and tax and a five-fold increase in EPS to 0.75c (0.47p) per share, notwithstanding the increase in equity relating to the fund-raising that allowed the Bindura Nickel recapitalisation to proceed. Aside from the BNC restart, the major corporate event of the period was the SEMHKAT agreement with Hailiang, while Freda Rebecca has continued to achieve record gold output.

Old Warhorse Showing New Life
Having reached agreement with its creditors, BNC is now on course to ramp up production to a rate of 7,000tpa nickel in concentrate, with sale of the first concentrate to Glencore anticipated in CY Q213 (ie the April-June quarter). In the longer term, MWA’s intention remains to bring Hunters Road into production and to restart the Bindura Smelter & Refinery (BSR).

Freda Rebecca On The Road To Manderley Again
Simultaneously, FRGM (which accounted for 98.3% of group revenues and 99.1% of costs of sales) achieved its best quarter of gold production since its restart in the September quarter and the highest level of gold production in a single month in August, when 7,242oz was produced. At its current annualised rate of production of 72,000oz (ie 6,000oz per month), it is once again the largest producing mine in Zimbabwe, at a C1 cash cost of c $800/oz.

Valuation: 23.91-24.45cps (14.9-15.2pps)
Four assets comprise Edison’s valuation of Mwana Africa: the dividend stream to investors originating from its interests in Freda Rebecca and BNC discounted to present value (17.99cps), the Zani-Kodo resource (2.80cps), the value of FRGM’s and BNC’s residual resources after the completion of their official mine plans (1.21cps) and SEMHKAT (2.45-1.91cps). We have adjusted our FY13 and FY14 forecasts to account for the interim results, as well as a slightly lower prevailing nickel price, a high marginal rate of taxation and the continuation of care and maintenance costs for slightly longer than previously expected. At 5.2p, Mwana’s shares are still trading at a c 65% discount to Edison’s valuation – as wide as in late-June (when its shares traded as low as 3.5p) and despite a much-reduced risk relating to BNC after its successful recapitalisation and agreement with creditors. Additional upside exists in the form of exploration (especially at Zani-Kodo) and the potential to expand the Bindura restart in the future, which have yet to be considered in the current valuation.

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