HUM issued final results this morning and whilst most was expected in these results, it is managements overview that is more telling and makes for a terrific read. Hummingbird Resources are refreshing in many ways. Their communication to investors is excellent. Their commitment to the Yanfolila Gold development is 110%.
Daniel Betts and team have made huge progress since gaining funding late last year. The company website has some great images and video’s showing the Gold development growing by the day. All is on budget and on time at present. There’s still some hurdles to leap but all the main long lead time materials have been ordered and are on site derisking the project further.
As Daniel states in this mornings results…
“Based on this capital structure and looking forward to our first year of full scale production, this marks Hummingbird out as the standout gold developer trading in the public markets. It is trading on 1.26 times projected free cash flow for the first full year of production against an industry average which can range anywhere from 15-25 times. In the first full year of production, cash flow per share will be 20p.
This assessment of Hummingbird’s exceptional position in the market does not take our 4.2Moz Dugbe gold project in Liberia into account. Broker Cantor Fitzgerald has suggested that this project could offer significant further upside and add a further 14p in value.
It is with this in mind that I firmly believe that Hummingbird is due a re-rating in the market as it evolves into a profitable mining company and delivers the significant free cash flow highlighted in our DFS.” END
I couldn’t agree more with him. Hummingbird should be in the mid 40’s by now especially with so many risky items in the development now completed and thus derisked.
Daniel also hints at a possible incease in reserves/mine life…
“Exploration has taken a back seat over the past year, for the reasons stated above. However, as we approach the commencement of production, we are starting to now evaluate exploration targets (both brown and green fields) to extend the mine life at Yanfolila. We are in an enviable position because we already have the resources to extend the mine life. It is simply a question of prioritising the best ounces to convert to reserves and bringing these reserves into the mine plan first to improve the economics. We are excited about our various expansion and exploration initiatives and I look forward to updating the market about these programmes in due course.” END.
There is certainly scope to improve on the resource at Yanfolila and I believe there is a not so subtle hint of what might be to come. As investors that follow the sharehub and HUM closely will know, the greater Yanfolila area (GYA) was recently signed over to Glenwick in a deal which will see Hummingbird shareholders retain approx 45.5% of the undeveloped area but through Glenwick shares. Glenwick have yet to relist and I suspect this will become clearer in the next few weeks. Thereafter, I suspect GYA will be explored via equity raising which will not come from HUM shareholders, but via Glenwick thus minimising risk and diluton. To date the market has not priced in very much for the Yanfolila development potential or GYA. This is something that I think the market will like when it finally arrives. If GYA delivers further resources then the cost to combine with the Yanfolila development is minor. The cost savings across the entire project should thus drop further. Quite remarkable considering costs are already extremely low at sub $700oz.
So what’s the plan going forwards? Dividends? Share buy backs? How is the cash flow going to be deployed once the gold begins pouring in late 2017?
Well, Hummingbird have two main licences. One in Mali (Yanfolila) and the other in Liberia (Dugbe). The latter is actually larger than Yanfolila and yes, the market has not priced anything in for this as it’s very much viewed as non core… at the moment. Cantor assigns 14p but I have no doubts that this will be worth 10 times that amount once fully operational, which of course will take time and capex.
So this is what I would do if I were Mr Betts and team…
- Relist Glenwick with funding deal to develop GYA in next few months – the sooner the better as it can be bolted into the developing mining site
- Deliver first Gold Pour at Yanfolila and generate cash flows
- In mid 2018, use cash flows to get Liberia/Dugbe moving
- Flog Yanfolila to Randgold or another larger player in 2019 for a handsome sum
- Deploy cash into Dugbe (subject to other acquisition opportunities)
Assuming the above works out, I would envisage a share price close to 500p+. Not bad for a stock currently priced at 25p a share. It might take a few years, but worth the wait assuming Gold remains firm. Should Gold rise above 1250 and towards 1600 levels, the numbers become astonishing! For now, best stick to a medium pricing expectation.
Hummingbird Resources is about as fresh as they come when it comes to growth stocks. As always with any stock risks shoud be noted. See risk warnings in column opposite.
HUM is part of thesharehub top ten for 2017.