London, UK, 6 March 2018

Edison Initiation coverage on Auriant Mining (AUR)

After five years of gold production via both gravitational and heap leach recovery methods, Auriant's Tardan plant is now being remodelled to a single carbon-in-leach (CIL) process flow route, which is expected to improve metallurgical recoveries by c 31% and halve total cash costs to c US$523/oz. At the same time, Auriant is also completing a definitive feasibility study (DFS) on its greenfields Kara-Beldyr prospect. Combined, the two are expected to achieve management's goal of 3,000kg (or 96,453oz) of gold output per year from FY22 (vs 809.5kg, or 26,049oz, in FY17), when the company is forecast to achieve an EBITDA of US$52.7m.

On the basis that management executes the Tardan CIL project and the Kara-Beldyr project according to plan (and raises US$17.2m in cash via equity in Q118 and late FY18/early FY19 combined), we estimate that Auriant is capable of generating average cash flows of US$38.6m, average earnings of US$31.5m and average EPS of 16.7 US cents in the 12-year period from FY22-33 (inclusive), thus allowing it to pay maximum average potential dividends to shareholders in the order of 20.6c per share in the period FY25-33 (inclusive). Discounted at Edison's customary 10% discount rate, such a stream of dividends has a value of US$0.72/share in 2018 (assuming a conventional equity raise at the current share price), rising to US$1.29/share (SEK5.95, rising to SEK10.66) on the cusp of the company's first substantive dividend in FY25. However, this valuation rises to US$0.79/share (SEK6.53) in the event of the full exercise of Auriant's 57.0m outstanding warrants at a price of SEK2.50 in Q118 (a relatively anti-dilutive contingency as it involves the issue of fewer shares) and to a pre-money valuation of US$0.84/share (SEK6.94) ahead of the second round of funding.

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