DJ Carmichael-Initiation of coverage

RESEARCH
RESOURCES
RECOMMENDATION –
Alcyone Resources Ltd (AYN)
Speculative Buy
Initiation – Highly leveraged to the silver price
26 June 2012
12mth Valuation
$0.07
12 month volume
12 month share low
12 month share high
1,822m
$0.031
$0.125
Market Risk
Liquidity Risk
Infrastructure Risk
Country Risk
High
High
Medium
Low
IRESS & DJC Research
ISSUED CAPITAL
ASX
Share price
Mkt cap1
Ordinary shares on issue
Unlisted Options
AYN
$0.033
$49m
1,422m
114m
Source: IRESS
1 Undiluted
2 Various dates and strike prices
DIRECTORS
Charles Morgan
Andrew King
Andrew Richards
Ian McCubbing
Non-Exec Chairman
Managing Director
Non-Exec Director
Non-Exec Director
Source: AYN
MAJOR SHAREHOLDERS
JP Morgan Nominees
HSBC Nominees
Lyandji Super Fund
Seaspin Pty Ltd
17.10%
3.97%
2.57%
2.57%
Source: AYN
12 MONTH PERFORMANCE
0.14
0.12
0.10
0.08
We are initiating coverage on Alcyone Resources (AYN) with a Speculative Buy
recommendation and price target of $0.07/sh, representing ~113% upside from the current
share price ($0.033). AYN is in the advanced ramp up stage of silver production following the
redevelopment of the Texas silver project located in Texas, South East Queensland. The
project comprises the Twin Hills silver mine plus an additional deposit at neighbouring Mt
Gunyan. With unit operating costs forecast at approximately A$15/oz once in full production,
AYN is capable of generating strong cash margins at the current spot silver price. AYN had
its first silver pour in July 2011 and is moving towards steady state production in the
December quarter 2012 at a rate of ~1.5Mozpa with the potential for a +10 year operation. It
also has access to over 1100sqm of highly prospective tenements in the Texas region.
Key Points:

AYN is a reincarnation of Macmin Silver which was placed into administration as a result of
funding difficulties during the GFC. AYN has assumed ownership of Macmin’s operational
assets including the entire Twin Hills Silver project portfolio, processing facilities, mobile
plant and administration buildings. AYN moved from a standing start to first silver production
at Texas in just 18 months.

AYN has a current resource base of ~21Moz Ag. Exploration is targeting 30-50Moz Ag total
resources with further upside potential in base metal targets.

AYN is highly leveraged to the spot silver price. AYN is suited to an investor that is looking
for pure silver exposure in the Australian market. A 10% increase (decrease) in the silver
price translates to a 17% increase (decrease) in our AYN valuation. A 10% increase
(decrease) in the AUD translates to a 9% decrease (increase) in our AYN valuation.

Recent underperformance in the AYN share price appears to have highlighted a ‘value gap’
between the AYN share price and the spot silver price. We note that AYN hit a record high
of $0.145 as spot silver hit record highs of ~US$50 in April 2011. There appears to be
greater leverage in the AYN share price than purchasing silver directly through an ETF
based on past performance. We note AYN’s share price of $0.033 is a 77% drop from
record highs while silver is ~47% from its record high.

We rate AYN a Speculative Buy with a Target Price of $0.07 using a DCF method (10%
discount rate) and a long term silver price of US$26/oz (AUD/USD 0.90) using a mine life of
7 years. Exploration and extensions to the resource base provides upside risk to our
valuation.
Earnings Forecast – Year end June
0.06
0.04
0.02
0.00
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Source: IRESS
.
Chris Whitehead
Resources Analyst
+61 (8) 9263 5293
[email protected]
Revenue
EBITDA
Reported net profit
EPS (c)
EPS growth (%)
P/E ratio (x)
Price/CF (x)
EV/EBITDA
Dividend (cps)
2012f
14
2
1
0
N/A
71
12
31
0
2013f
42
17
13
0.9
1759
3.8
3.4
2.3
0
2014f
44
21
18
1.1
32
2.9
2.4
1.1
0
Source: DJC
D J Carmichael Pty Limited ABN 26 003 058 857 AFSL 232571
Telephone: 08 9263 5200 Facsimile: 08 9263 5283 Email: [email protected] Webpage: http://www.djcarmichael.com.au
2015f
44
21
13
0.8
-28
4.0
3.0
0.5
0
RESEARCH
RESOURCES
Company Overview
AYN’s flagship asset is the Texas Silver project located near the town of Texas, approximately three
hours south-west of Brisbane in South East Queensland. AYN is a reincarnation of Macmin Silver
that was forced into administration in November 2008 as a result of financing issues and the onset of
the global financial crisis.
AYN commenced silver production from the Texas project in July 2011, and is ramping up to steady
state production of 1.2-1.5Mozpa Ag by Q4 2012 at targeted life of mine cash costs of ~$A15/oz.
There is the potential for a +10 year operation.
Investment Thesis
One of the few ways to gain exposure to silver outside of silver exchange traded funds
(ETF’s) in the Australian market. AYN is a pure silver producer, which is uncommon in companies
listed on the ASX.
Ramping up production in the near term. AYN has had delays in the ramp up phase which,
coupled with a selloff in small cap resources, have led to recent underperformance in the AYN share
price. Steady state production of 1.2-1.5Mozpa is now 6 months away. We anticipate a rerating upon
constant production.
Highly leveraged to the price of silver. AYN is ‘one for the silver bulls’. AYN is currently near a 12
month low at $0.033, while spot silver is fetching ~US$27/oz. We note that AYN and spot silver hit
record highs of $0.145 and $49.82 respectively in April 2011. This represents ~339% upside from
current levels in AYN and ~85% in spot Ag. There appears to be much greater leverage to the silver
price based on past performance in purchasing AYN rather than a silver ETF.
A ‘value gap’ has emerged. There has been a disconnect as of late between the price of silver and
the AYN share price, with the AYN share price underperforming spot silver. This has occurred due to
the selloff in small cap resources and a ‘value gap’ appears to have emerged for those that are
bullish silver.
Exploration and extensions to the mine life provide upside risk. AYN has a $3m budget for
exploration in 2H12 and has recently quadrupled its landholding in the Texas QLD area. AYN
currently has 21Moz of silver resources at Texas with a recently established exploration target of a
further 15Moz from near mine targets. The acquisition of these new tenements has the potential to
enhance this exploration target further. AYN has also intersected significant base metals in attractive
geological settings.
Catalysts
Resource and Reserve upgrades are expected by the company within the next quarter. This will
provide more clarity around mine life and additional feed available for the Texas project.
Silver price. This is the major driving factor for the AYN share price. AYN is highly leveraged to the
silver price. A 10% increase (decrease) in the silver price translates to a 17% increase (decrease) in
our AYN valuation.
Results from silver and base metals exploration. AYN is conducting an exploration program
aimed at increasing its existing inventory of heap leachable silver resources to support additional
feed and assess the potential for a base metals project. AYN has a $5 to 6m, results driven
exploration budget per annum. The currently undefined potential of the newly acquired tenements
could be a key driver for future expansion.
26 June 2012
2
RESEARCH
RESOURCES
Valuation
DJC has valued the Texas silver project using silver pricing and currency assumptions as described
in Figure 3. Our valuation of AYN is $0.07. We predict net profit of $A13m in FY13 allowing for
~1.3Moz of Ag production.
Texas
Corporate
Exploration
Net Cash
Extra Resource oz's
Total
$m
$m
87
-8
10
4
8
100
Now $ps 12 mth $ps
0.058
0.052
-0.004
-0.005
0.007
0.007
0.003
0.000
0.007
0.007
0.070
0.060
Figure 1. AYN Valuation
24 mth $ps
0.042
-0.004
0.007
0.008
0.007
0.058
Source: DJC
Production
Silver production is on track to ramp up at the Texas silver project to a targeted rate of 1.2-1.5Mozpa
by end CY12. We have modelled production rates as shown below. We assume 11Moz is converted
from the current resource base of 21Moz’s, Life of mine cash costs are estimated to be A$15/oz. To
add in some contingency and conservativeness, we assume long term cash costs of A$17/oz.
Throughput (kt)
Silver Grade (g/t)
Silver Recovery
Silver (koz)
Cash Costs (US$/oz)
Cash Costs (A$/oz)
2012f
420
64
62%
574
24
24
2013f
950
60
68%
1329
17
17
2014f
1000
60
68%
1399
15
15
Figure 2. Modelled production/cash costs
2015f
1000
60
68%
1399
15
15
Source: DJC
Commodity Assumptions
We use a long term silver price of US$26/oz and AUD/USD of 0.90. This long term silver price is
based on a 50:1 gold/silver ratio. DJC use a long term gold price of US$1300/oz.
Silver Price (US$/oz)
Exchange rate (AUS:US$)
Silver Price (A$/oz)
Figure 3. Modelled commodity prices
2012f
33.45
1.02
32.79
2013f
31.59
1.00
31.59
2014f
31.45
1.00
31.45
2015f
31.27
1.00
31.27
Source: DJC
Exploration
We have given a nominal $18m for exploration upside. In parallel with AYN’s silver production at
Twin Hills, AYN is also conducting an exploration program aimed at unlocking the broader
exploration potential of the Texas project for epithermal and sulphide base metal mineralisation, as
well as increasing its existing inventory of heap leachable silver resources. AYN’s exploration targets
and prospects provide upside risk to our valuation and target price.
We have given a value of $10m to the remaining resources not DCF modelled (10Moz) at a value of
$1/oz (gold equivalent of US$50/oz). AYN has a target of increasing its resources by a further
15Moz. We have given this a value of $7.5m using $0.50/oz (gold equivalent of US$25/oz). No
valuation has been given to the base metals potential on the tenements.
26 June 2012
3
RESEARCH
RESOURCES
Sensitivity analysis – Leverage to silver
We perform a sensitivity analysis on the AYN NPV based on a range of spot silver prices for life of
mine using a spot AUD/USD of 1.00. Figure 4 shows the leverage of the AYN share price to the spot
silver price.
Spot Ag ($US/oz) AYN Valuation
20
$0.03
30
$0.06
40
$0.10
50
$0.14
Figure 4. AYN sensitivity analysis
Source: DJC
With a 10% increase (decrease) in the silver price and our currency forecasts unchanged, the
valuation of AYN increases (decreases) by 17%. Further, with a 10% decrease (increase) in
the AUD and keeping our commodity pricing unchanged, the valuation of AYN increases
(decreases) by 9%.
At A$15/oz cash costs, using a 50:1 gold silver ratio, an equivalent gold producer would be operating
at A$750/oz – a mid-cost producer in the current environment. We note that companies with higher
costs are more sensitive to the underlying commodity price. An increase (decrease) in the underlying
commodity has a greater net increase (decrease) on the bottom line in percentage terms the higher
cost a producer is.
We provide historical data on the gold/silver ratio over a five year period below. This is simply the
gold price divided by the silver price. Over the past twelve months the gold/silver ratio has ranged
between 39 and 57. Over the past five years, the gold/silver ratio has ranged between 32 and 83.
DJC use a 50:1 gold/silver ratio for our long term silver pricing.
90
80
70
60
50
40
30
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Gold to Silver Ratio
Figure 5. Gold/Silver ratio over 5 year period
26 June 2012
Source: IRESS
4
RESEARCH
RESOURCES
Silver Price
Silver prices reached record highs in April 2011, nudging US$50/oz. The subsequent pullback was
largely a result of increased margin requirements on futures contracts and an increased speculative
driven market. However, spot silver is still strong, fetching around US$27 at time of print.
50
45
40
35
30
25
20
15
10
5
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Silver Price
Figure 6. Silver price 5 year chart ($US/oz)
26 June 2012
Source: IRESS
5
RESEARCH
RESOURCES
AYN versus spot silver
We track the spot silver price versus the AYN share price for a 12 month period below. We note the
high correlation between the silver price (USD) and AYN up until early March 2012. There appears
to be a disconnect as of late due to the selloff in small resources and a significant ‘value gap’ has
appeared for those that are bullish silver assuming the divergence corrects to its long term historical
trend. The below graph is based to 100 and represents one year performance in AYN versus spot
silver.
150
Price Performance Based to 100
130
110
90
70
50
30
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
AYN
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Silver (USD)
Figure 7. AYN v spot Ag – 1 year graph
Source: IRESS
We track the spot silver price versus the AYN share price for a 24 month period below. We aim to
demonstrate the potential leverage in purchasing AYN versus spot Ag. The below graph is based to
100, however we note that the record high in AYN is $0.145, achieved when spot silver hit a record
high of ~US$50 in April 2011.
750
Price Performance Based to 100
650
550
450
350
250
150
50
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
AYN
Figure 8. AYN v spot Ag – 2 year graph
26 June 2012
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Silver (USD)
Source: IRESS
6
RESEARCH
RESOURCES
Financial/Hedging
AYN has current forward silver sales and pre-paid commitments of ~300k ounces at an average
price of $33.83 per ounce. AYN will be fully unhedged at the beginning of CY13.
AYN recently undertook a share placement comprising 72,916,667 shares at an issue price of 4.8
cents per share, plus one free attaching option for each two new shares issued, exercisable at 6
cents per share and expiring on 14 May 2015, to raise a total of $3.5 million. A number of
international institutions and high net worth investors, including several existing long-standing
shareholders participated in the share placement. AYN’s Chairman, Mr Charles Morgan, also applied
for $500,000 in the placement, reflecting his confidence in the future of the Company.
Further, AYN ran a Share Purchase Plan (SPP) to provide existing shareholders with the opportunity
to invest at the same price as the placement under the same conditions as the placement. A total of
$1.6m was raised as a result of the SPP.
The proceeds are to be used as follows:
a). To bring forward the commissioning of Leach Pad 4 (LP4), enabling Alcyone to accelerate the
ramp-up of production at the Twin Hills heap leach silver mine – the first layer of ore has been placed
on Leach Pad 3 and civils for Leach Pad 4 are already starting.
b). To fund connection to the State electricity grid in South East Queensland to reduce operating
costs.
c). To expand and accelerate exploration activities at the Texas Project.
d). Working capital.
26 June 2012
7
RESEARCH
RESOURCES
AYN’s Assets – Texas silver project
AYN’s flagship asset is the Texas Silver project located near the town of Texas, approximately three
hours south-west of Brisbane in South East Queensland. AYN commenced silver production from the
Texas project in July 2011, and is ramping up to steady state production of 1.5Mozpa Ag by Q4
2012.
The Twin Hills and Mt Gunyan projects are epithermal/mesothermal deposits which are amenable to
heap leach treatment. Macmin Silver operated the Twin Hills Mine between March 2007 and July
2009, producing approximately 500koz of silver when the silver price ranged between $9 and $20/oz.
Macmin was adversely impacted by heap-leach processing issues, a result of not crushing the ore
finely enough. This combined with an inability to raise further financing to fix these issues resulted in
the project being placed on full care and maintenance.
AYN successfully retained Macmin’s operational assets through the reconstruction and recapitilsation
by the current Board and Management team in late 2009. The asset acquired by AYN included the
entire Twin Hills operation (infrastructure, plant, buildings, etc) and included 400kt of crushed ore on
the leach heaps and a further 200kt of partially crushed ore on the ROM pads.
The Company’s current aim within the broader project area is to get to steady state production of
1.5Mozpa from the Twin Hills Mine as well as undertaking exploration work to establish additional
feed. AYN currently has a JORC resource for the Twin Hills and Mt Gunyan deposits of 21Moz of
contained silver, of which 90% is in the Measured and Indicated categories.
The Texas Silver and Polymetallic Project was recently expanded from a 260 to a 1,100 sq km
portfolio of tenements. In April 2012 AYN signed an agreement to acquire a large 900 sq km
tenement package from Navaho Gold Limited that lies adjacent to the Texas Project. The agreement
is subject to technical and commercial due diligence. The new tenements cover ground to the north
and east of the Texas Project, in an area where AYN’s regional geological model indicates strong
potential for both silver and base metals mineralisation. The Company intends to commence
exploration within these new tenements as soon as possible.
Figure 9. Texas Project Resources
26 June 2012
Source: AYN
8
RESEARCH
RESOURCES
Twin Hills
AYN commenced production from the Twin Hills heap leach mining operation in July 2011.
Reirrigation of the existing silver rich heaps at the Twin Hills mine from when Macmin Silver was
operating commenced in April 2011, resulting in AYN successfully pouring the first silver bullion from
the Texas Silver Project in July.
Following the acquisition of Twin Hills from Macmin, AYN completed a heap leach test program from
the historical heap leach pads in order to further improve the understanding of past operational
issues, which resulted in an overall silver extraction of 69%. It was revealed that the key to achieving
this extraction rate was product size. The inability to achieve the smaller crushing size was the major
contributing factor to a slower extraction rate which impacted negatively on the overall silver recovery
and project economics of the mine when run by Macmin.
Test work of the historical heap leach pads indicated that the previous product size was coarser than
100% passing 4mm and did not achieve 50% passing 1mm. AYN upgraded the existing 1Mtpa Twin
Hills processing plant, including the installation of a new crushing circuit that will produce a product at
100% passing 4mm. AYN designed a crushing circuit that will produce a product at 100% passing
4mm. AYN test work showed that the ore needed to be at this size to leach effectively. A
commercial-scale Merrill Crowe silver recovery circuit was also installed. Both have been
successfully commissioned and the heap leach is now moving towards overall design processing
capacity with full scale production anticipated in Q4 2012.
In March 2012, AYN reported a substantial increase in the Mineral Resource estimate for the Twin
Hills deposit. The updated Mineral Resource comprises 9.5 million tonnes grading 53.8g/t Ag for 16.4
million ounces of contained silver at a cut-off of 26.5g/t Ag. This represents a 69% increase in
contained silver over the previous Mineral Resource estimate (3.684Mt grading 82g/t Ag reported at
a 40g/t Ag for 9.7 million ounces) reported to the same surface.
Based on current heap leach silver resources at Twin Hills, the operation has a declared mine life of
five years based on a forecast production rate of 1.2-1.5Mozpa.
Figure 10. Twin Hills location
26 June 2012
Source: AYN
9
RESEARCH
RESOURCES
Mt Gunyan
Mt Gunyan is located approximately 4.5km north-east of the Twin Hills Mine, and is a mesothermal
disseminated silver deposit with elevated gold in some parts. The Mt Gunyan deposit is considered
the next source of ore feed for the heap leach mining operation at Twin Hills. It has the potential to
increase the life and throughput of the Twin Hills operation by 18 months to two years.
AYN has defined a current heap leach silver resource for the Mount Gunyan deposit of 2.3 million
tonnes grading 69g/t Ag for 5.19 million ounces of silver.
Work is progressing on the preliminary Feasibility Study for development of the Mt Gunyan deposit.
Samples from the existing core have been dispatched for metallurgical testwork on the extraction of
silver mineralisation. Once the metallurgical parameters are more accurately defined, the next phase
of mine planning and permitting commence.
Exploration – Silver and base metals targets
In parallel with AYN recommencing silver production at Twin Hills, AYN is also conducting an
exploration program aimed at unlocking the broader exploration potential of the Texas Project for
epithermal and sulphide base metal mineralisation, as well as to increase its existing inventory of
heap leach silver resources. A review of part of the Company's tenement package has revealed a
considerable number of targets. The objective is to extend the mine life towards 7-10 years while
also investigating the potential for delineating sufficient base metal resources to justify a future
mining operation.
Figure 10.
26 June 2012
Exploration targets are within close proximity
Source: DJC
10
RESEARCH
RESOURCES
Exploration – Heap leach silver style targets
AYN is targeting total mineral resources of between 30 and 50 Moz Ag from across the Texas Project
area, sufficient to extend the Twin Hills mine life beyond ten years. This is inclusive of the Mineral
Resources reported for Twin Hills and Mt Gunyan. At this stage AYN has identified a potential
Exploration Target* of 15Moz of in situ silver mineralisation in the locations summarised in the table
below:
Figure 11. Silver exploration target details
Location
Target
Tonnes
Average
Silver
Min. Max.
(Moz)
Min.
Max.
Twin Hills
Southern
Extension
Deeps
1
250,000
750,000
60
80
1
250,000
500,000
80
150
Subtotal
1.9
750,000
30
50
Comments
Near surface, strike extent defined by
some previous drilling
Beneath current planned open pit
Mount
Gunyan
Main Deposit
0.5
250,000
Deeps
1.4
500,000 1,000,000
60
80
South East
0.5
250,000
500,000
40
70
South West
0.5
250,000
500,000
40
70
Subtotal
2.9
250,000
750,000
60
100
500,000 1,000,000
60
70
Additional mineral resource from reestimation
Depth extension to current mineral
resource
Shallow, extent defined by some RAB
drilling
Shallow, extent defined by some RAB
drilling
Western
Tectonic
Corridor
Tornado
1
Hornet
1.4
Falcon
1
250,000
750,000
60
80
Unnamed 1
1
250,000
750,000
60
80
Unnamed 2
1
250,000
750,000
60
80
Subtotal
5.3
Individual
Targets
Tom Cat
Silver Spur
North
2.2
750,000 1,500,000
60
100
0.5
250,000
40
80
Hawker
2.2
750,000 1,500,000
60
100
TOTAL
15
500,000
Surface sampling Ag +/- Zn anomaly
defines +600m strike depth
Numerous occurrences, Ag +/-Cu/Zn, not
part of main Cu prospect
Ridge line to NE and parallel to Hornet,
similar potential to Hornet Ag
Additional as yet untested structures
defined by Sub Audio Magnetic (SAM)
survey and mapping
Additional as yet untested structures
defined by SAM survey and mapping
Ag/Zn soil anomaly defines strike extent
Near surface lodes, strike and width defined
in part by RAB drilling
Silver soil anomaly, RC drilling returned up
to 100g/t Ag, strike length of 100m
Source: AYN
The Moz figures are determined by averaging the tonnage and applying the minimum grade. (The
Moz figures are rounded).
The targets identified are conceptual in nature based on some or all of the following
information/assumptions:

Preliminary drilling defining some aspects of the target dimensions and grade

Surface sampling defining some aspects of the target dimensions, the grade range is
applied based on similar targets or existing prospects/deposits

Geophysical interpretation; the tonnes and grade are applied based on comparison to better
identified targets or existing prospects/deposits in the same or similar geological setting
*These targets do not have sufficient information to quote mineral resources nor is there any
guarantee that with additional exploration these targets will become mineral resources.
26 June 2012
11
RESEARCH
RESOURCES
AYN’s key near-term targets for heap leach silver exploration are:
a). Western Tectonic Corridor (WTC) – 5km long geological structure which hosts the Hornet, Falcon
and Tornado targets in the western area of AYN’s tenement holding. The WTC has been interpreted
as a series of NNW-SSE trending shear zones intersected by north-south orientated structures, with
the potential for precious and base metals mineralisation to exist along and at the intersections of
these features.
b). Twin Hills and Mt Gunyan Deposits have the potential to deliver extensions to their current
mineral resource both at depth and along strike.
c). The Silver Spur region, located 2km south-east of Twin Hills, is also emerging as an exciting
target. AYN has recently identified a zone of near-surface silver mineralisation to the north of the
historic mine.
Exploration – Base metal targets
AYN is aiming to define sufficient base metals resources at the Texas Project to commence a viable
base metals production operation. The Company is currently evaluating targets at:
Hornet Cu
150m strike length of anomalous copper identified by diamond and RC drilling
Hornet North
Broad zones of anomalous zinc identified by RAB drilling
Falcon
Extremely anomalous results from surface sampling, including peaks of 184g/t silver, 2.7% copper,
3.4% lead and 13.7% zinc
Vampire
Copper anomaly in soils
Hawker
Copper mineralisation identified in RC drilling
Silver Spur
Inferred JORC resource of 808,000t @ 3.56% zinc, 1.25% lead, 70g/t silver (above 2% ZnEq cut-off)

Historical mining of 90-100,000t at 25% Zn, 13% Pb and 800g/t Ag

RC and diamond drilling has returned encouraging grades indicating significant remnant
mineralisation

Undercover conductivity targets (identified by surface EM) to the south and east of the old
mine.
26 June 2012
12
RESEARCH
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Risks
Commodity and currency price. AYN’s earnings are highly leveraged to the price of silver. A higher
$A dollar is a downside risk to revenues.
Operating. Mining is relatively straight forward from open pit(s). Metallurgical recoveries from a full
scale operation are yet to be established.
Mine life. Current reserves are sufficient for 4-5 years production. However with nearby Mt Gunyan
and several other deposits the life of mine is likely to be extended. AYN is targeting a +10 year mine
life at ~1.5Mozpa. DJC has modelled a 7 year mine life.
Environmental. All approvals have been obtained for mining and environmental risk is low.
Financial. Cash on balance sheet is currently ~$4m. Cash flow should become positive
on full production 2H12.
26 June 2012
13
RESEARCH
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Directors and Management
Mr Charles Morgan - Non Executive Chairman
Mr Morgan has extensive experience in equity capital markets and has been involved with numerous
projects over a 25 year period. Most of these were in the resources/oil & gas industries and the
technology sector. Mr Morgan has successfully identified emerging international opportunities and
acquired large, early stage and strategic positions in a wide range of ventures around the world. In
addition to identifying and acquiring interests in early stage ventures, his strengths include partnering
with regional experts, securing teams of appropriate executives, procuring development capital and
adding value for the benefit of shareholders. He holds, or has previously held, the positions of
Founder, Chairman, Director and/or Major Shareholder in the following companies: Alto Energy Ltd,
Nido Petroleum NL, West Oil NL, Fusion Oil & Gas NL, Valdera Ltd, Nautronix Ltd, WildHorse Ltd,
Matra plc, Grand Gulf Energy Limited, Latent Petroleum Pty Ltd and VectoGen Ltd.
Mr Andrew King - Managing Director
A mining engineer with over 34 years’ experience in the mineral resources industry, Mr King has a
considerable depth of knowledge and expertise in technical disciplines as well as in the successful
establishment of new companies including Victorian gold company Goldstar Resources NL. In
addition to experience covering corporate, strategic and operational roles in gold, iron ore, coal and
base metals, Mr King also holds qualifications in accounting and financial management. He is a
member of the Australasian Institute of Mining and Metallurgy and the Australian Institute of
Company Directors. He is currently Chairman of Base Resources Ltd and provides corporate and
operating consulting services to the mining and financial industries. Previously, he held senior
positions with Goldstar Resources NL, Tectonic Resources NL, Mt Edon Gold Mines (Aust) Pty Ltd
and Griffin Coal Mining Company
Mr Andrew Richards - Non Executive Director
Andrew is a geologist with 30 years’ experience in the mining industry, seven years of which involved
a senior role in Resource Project Finance within a banking environment. Prior to 1996 he worked in a
wide variety of areas and in commodities, in both production and exploration geology, before
becoming Chief Geologist at New Celebration and Telfer Gold Mines. Since 2004 Andrew has
worked extensively in Australia, Asia and South America, providing consultancy and advisory
services, mineral asset valuations, Independent Expert Reports and managed several listed and
unlisted companies.
Mr Ian McCubbing – Non Executive Director
Mr McCubbing, is a Chartered Accountant with extensive corporate experience, including senior
finance roles with ASX 200 and other listed companies in both the mining and industrial sectors. Mr
McCubbing was previously Chief Financial Officer of GRD Ltd and is presently a nonexecutive
director of Kasbah Resources Ltd, Mirabela Nickel Ltd, Swick Mining Services Limited and Chairman
of Eureka Energy Limited.
26 June 2012
14
RESEARCH
RESOURCES
Alcyone (AYN)
PROFIT AND LOSS (A$)
Y/e June 30
Revenue
EBITDA
Depreciation
Amortisation
EBIT
Other income (expenses)
Net Interest Expense
Profit/Loss Before Tax
Income Tax Expense
Net Profit
Adjustments
DJC adj NPAT
One-off items
Reported net profit
2012f
14
2
-1
0
1
0
0
1
0
1
0
1
0.0
0.7
2013f
42
17
-4
0
13
0
0
13
0
13
0
13
0.0
13.3
2014f
44
21
-4
0
17
0
1
18
0
18
0
18
0.0
17.5
2015F
44
21
-4
0
17
0
1
18
-5
13
0
13
0.0
12.7
2012f
12
-10
0
0
1
4
2013f
41
-24
0
0
-2
15
2014f
44
-23
1
0
0
21
2015f
44
-23
1
-5
0
17
-12
0
1
-3
-15
-2
0
0
-3
-5
-2
0
0
-3
-5
-2
0
0
-3
-5
Change in borrowings
Equity raised
Dividends paid
Other
Financing cashflow
3
7
0
0
10
0
1
0
0
1
0
0
0
0
0
0
0
0
0
0
Net change in cash
-1
11
17
13
2
13
30
43
CASHFLOW (A$)
Receipts from customers
Payments to suppliers
Net interest
Tax paid
Other
Operating cashflow
Capital Expenditure
Investments
Asset sales
Other
Investing cashflow
Cash at end of period
BALANCE SHEET (A$)
2012f
2
2
1
0
1
7
2013f
13
3
3
0
1
21
2014f
30
3
4
0
1
38
2015f
43
3
4
0
1
51
Plant & Equp % Dev
Investments
Intangibles
Other
Non-current assets
Total assets
14
0
15
4
35
42
11
0
18
4
35
57
9
0
21
4
36
74
6
0
24
4
36
87
Payables
Debt
Provisions
Other
Total liabilities
3
4
4
3
14
4
4
4
3
15
3
4
4
3
14
3
4
4
3
14
Shareholders’ equity
Minorities
Total shareholders funds
28
0
28
42
0
42
60
0
60
72
0
72
Total funds employed
29
32
33
33
W/A diluted shares on
issue
1470
1532
1532
1532
Cash
Receivables
Inventories
Investments
Other
Current assets
26 June 2012
PRICE ASSUMPTIONS
Market Cap: A$m diluted
2012f
Silver Price (US$/oz)
Exchange rate (AUS:US$)
Silver Price (A$/oz)
33.45
1.02
32.79
RESOURCES AND RESERVES
Deposit
Classification
Twin Hills
Measured
Indicated
Inferred
TOTAL
Mt Gunyan
Measured
Indicated
Inferred
TOTAL
PROJECT TOTAL
All categories
PRODUCTION PROFILE
49 Share price
2013f
31.59
1.00
31.59
Tonnes
2,278,000
6,267,000
931,000
9,476,000
242,000
1,777,000
329,000
2,347,000
11,823,000
$0.033
2014f
31.45
1.00
31.45
Grade
2015f
31.27
1.00
31.27
g/t
81
44
53
54
69
69
69
69
57
Contained Ag
Moz
5.96
8.87
1.58
16.40
0.54
3.93
0.73
5.19
21.59
2012f
420
64
62%
574
24
24
2013f
950
60
68%
1329
17
17
2014f
1000
60
68%
1399
15
15
2015f
1000
60
68%
1399
15
15
2012f
1
0.0
N/A
70.7
0.3
12.4
0
0
0
31.5
11
2013f
13
0.9
1759
3.8
1.0
3.4
0
0
0
2.3
41
2014f
18
1.1
32
2.9
1.4
2.4
0
0
0
1.1
48
2015f
13
0.8
-28
4.0
1.1
3.0
0
0
0
0.5
48
PROFITABILITY RATIOS
2010a
EBITDA/sales (%)
EBIT/sales (%)
Return on assets (%)
Return on equity (%)
Return on funds empl’d (%)
Dividend cover (x)
Effective tax rate (%)
2012f
11
5
2
2
2
0
0
2013f
41
31
23
32
41
0
0
2014f
48
38
24
29
53
0
0
2015f
48
38
15
17
38
0
30
LIQUIDITY AND LEVERAGE
2010a
Net debt/(cash) ($m)
Net debt/equity (%)
Net interest cover (x)
Current ratio (x)
Inventory turnover
Inventory/sales
2012f
1
5
39
1
11
22
2013f
-10
-23
392
3
7
8
2014f
-26
-44
25
6
6
8
2015f
-39
-54
11
8
7
8
Now $ps 12 mth $ps
0.058
0.052
-0.004
-0.005
0.007
0.007
0.003
-0.001
0.007
0.007
0.070
0.059
24 mth $ps
0.042
-0.004
0.007
0.006
0.007
0.057
Throughput (kt)
Silver Grade (g/t)
Silver Recovery
Silver (koz)
Cash Costs (US$/oz)
Cash Costs (A$/oz)
VALUATION DATA
Net profit adj ($m)
EPS (c)
EPS growth (%)
P/E ratio (x)
CFPS (c)
Price/CF (x)
DPS (c)
Yield (%)
Franking (%)
EV/EBITDA
EBITDA margin (%)
2
VALUATION - DCF (fully diluted) - NPV @ 10%
$m
$m
Texas
87
Corporate
-8
Exploration
10
Net Cash
4
Extra Resource oz's
8
Total
100
Recommendation:
Valuation per share:
Total Return (including yield)
Spec Buy
0.070
111.0%
15
RESEARCH
RESOURCES
Disclosure Disclaimer
RCAN1049
This Research report, accurately expresses the personal view of the Author. All the information utilised in this report is accurate and current at the date
stated on this report.
DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they may hold
securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks
mentioned in this report.
DJ Carmichael Pty Ltd is a wholly owned subsidiary of DJ Carmichael Group Pty Ltd ACN 114 921 247.
In accordance with Section 949A of the Corporations Act 2001 D J Carmichael Pty Limited advise this email contains general financial advice only. In
preparing this document D J Carmichael Pty Limited did not take into account the investment objectives, financial situation and particular needs (‘financial
circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is
appropriate in light of your own financial circumstances or contact your D J Carmichael Pty Limited adviser. D J Carmichael Pty Limited, its Directors
employees and advisers may earn brokerage or commission from any transactions undertaken on your behalf as a result of acting upon this information. D J
Carmichael Pty Limited, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits
or advantages, either directly or indirectly, from client transactions. D J Carmichael Pty Limited believe that the advice herein is accurate however no
warranty of accuracy or reliability is given in relation to any advice or information contained in this publication and no responsibility for any loss or damage
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applicable law. If you are not the intended recipient or employee or agent responsible for delivering the message to the intended recipient, you are hereby
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The Author of this report made contact with Alcyone Resources Ltd for assistance with verification of facts, admittance to business sites, access to
industry/company information. No inducements have been offered or accepted by the company.
The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and
released on Alcyone Resources Ltd, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.
Recommendation Definitions
SPECULATIVE BUY – 10% out-performance, but high risk
BUY - 10% out-performance
ACCUMUATE – 10% or more out-performance, buy on share price weakness
HOLD – 10% underperformance to 10% over performance
SELL – 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.
Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s
recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.
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© 2012 No part of this report may be reproduced or distributed in any manner without permission of DJ Carmichael Pty Limited.
26 June 2012
16