FDX Secures Funding to Accelerate Turnaround

Published 05-JUL-2018 00:00 A.M.

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4 minute read

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Overview: Frontier Diamonds Ltd ("Frontier", "the Company") is a South African minerals company focused on diamond mining. The Company’s primary focus is on two operating mines, the Star and Sedibeng mines, both situated near the Kimberley region in South Africa. The Company has an Ore Reserve estimate of 1.63Mt at 33.4 cpht for 0.54m carats and a Mineral Resource of 4.5Mt at 28.7 cpht for 1.3m carats. Frontier Diamonds also owns the Bellsbank Exploration Project and the Tailings Reclamation Project, both situated adjacent to the Sedibeng Diamond Mine.

Catalysts: Frontier secured a total funding of $3.6 million to fast-track bulk sampling programs and its efforts to achieve full production at its operating mines. The Company recently reaffirmed its prospectus guidance to deliver a maiden profit in FY19. Star and Sedibeng witness increasing production and are on track to run at full capacity in H2 CY2018, like the recent introduction of Sub Level Retreat Mining techniques drives greater throughput at increased grades. A mine life extension for Sedibeng is supported by recent diamond discoveries at the adjacent Bellsbank license, where feasibility studies investigating the potential secondary ore source have commenced.

Hurdles: Despite the recently completed capital raising, Frontier remains reliant on external capital and there is no guarantee it can procure the necessary funding required to further advance its mining and exploration projects. Frontier has failed to achieve prospectus targets resulting in a sharp decline in the value of its share since the IPO and management has yet to demonstrate its ability to unlock value from its assets. Operations incur a high level of fixed cost and failure to meet production targets or forecasted sales would adversely impact the Company’s financial position.

Investment View: Frontier offers speculative exposure to diamond industry trends through a portfolio of operating mines in South Africa. Performance over the past year was disappointing with production adversely impacted by mine development and infrastructure expansion at Star and Sedibeng. Risks include reliance on external capital, diamond price volatility, and its high fixed cost operations. Management is confident that mine upgrades and a progressive move towards Sub Level Retreat mining techniques will see Star and Sedibeng return to nameplate production during FY19 and beyond. The recently secured funding alleviates balance sheet pressure and enables the Company to enlarge and accelerate its bulk sampling program, whilst at the same time deliver significantly higher throughput at its operating mines. We initiate coverage to monitor Frontier’s turnaround potential and upcoming appraisal of Bellsbank.

THE BULLS AND THE BEARS

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THE BULLS SAY

  • Frontier secured a total funding of $3.6 million to alleviate balance sheet pressure and accelerate efforts at Bellsbank, Star, and Sedibeng
  • Frontier is on track to significantly increase production at its operating mines, as the recent introduction of Sub Level Retreat Mining techniques drives greater throughput at increased grades. The mines are expected to run at or near full capacity in H2
  • There is potential for a resource upgrade. The Company has improved ore body knowledge as part of mining activities in previously underexplored areas of the
  • Given the fixed cost nature of its operations, there is potential for the incremental rise in revenues if diamond prices appreciate. Diamond markets have recently shown signs of
  • Frontier is conducting exploration activities adjacent to Sedibeng, which may offer upside to the stock
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THE BEARS SAY

  • Despite the recently completed capital raising, Frontier remains reliant on external capital and there is no guarantee it can procure the necessary funding required to further advance its mining and exploration
  • Frontier has failed to achieve prospectus targets resulting in a sharp decline in the value of its share since the IPO and management has yet to demonstrate its ability to unlock value from its
  • Frontier’s operations incur a high level of fixed cost and failure to meet production targets and achieving a sales price within a specified range would adversely impact the Company’s financial performance
  • Global diamond prices are volatile and declining prices could negatively impact the economic value of Frontier’s mining
  • The Company invests money and resources into its exploration projects and there is no guarantee that an economically viable resource can be delineated



General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.

 

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