Freehill Mining Ltd (ASX:FHS)

October 17, 2017 | Price: $0.095

Generating Cashflow, Eyeing Expansion

Overview: Freehill Mining Ltd (“Freehill Mining”, “the Company”) is an Australian minerals company focused on iron ore mining in Chile. The Company’s primary asset is the Yerbas Buenas Project situated 30 kilometres north of La Serena in the Coquimbo region, Chile. The Company has conducted pilot-scale iron ore mining operations since 2014 supported by an offtake agreement with Compania Del Pacifico S.A. (“CAP”), Chile’s largest iron ore producer. The Yerbas Buenas Project spans over 398 hectares and is in close proximity to existing infrastructure including ports, highways, and power. In addition, Freehill is focused on the exploration of other metals in the tenement.

Catalysts: Freehill Mining is on track to achieve positive operating cash flow at its operations at Yerbas Buenas, having substantially increased production over the past six months to over 10,000 tonnes per month in July, a fivefold increase compared to the March quarter. Delivery is supported by a commercial sales agreement with Chile’s largest iron ore miner. Plans are now underway to formalise an exploration target and commence a maiden drilling program to appraise the technical and economic merit of expanding the existing trial operations into a larger scale mine. Existing mining operations have the potential to fast-track future reserve delineation and feasibility studies, while a recent placement alleviates balance sheet pressure.

Hurdles: The Company remains reliant on external capital and there is no guarantee it can procure the additional funding required to develop its exploration assets. Operating the mine without a JORC compliant mineral resource or engineering study is a risk and considerable further capital and technical investigations are required to establish the feasibility and economic merit of continued mine development at Yerbas Buenas.

Investment View: Freehill Mining offers speculative exposure to iron ore markets through an operating mine in Chile. Rising production levels, near-term cashflow opportunities, and scale of targets quantified at Yerbas Buenas are attractive qualities. Risks include capital demand, balance sheet, and operating the mine without a certified resource. Delineation of JORC compliant resources and reserves is a major catalyst, which may be fast-tracked by current mining activities. As production levels increase, upcoming drilling activities are designed to highlight the commercial merit to further expand Freehill’s operations. Seeking to monitor the release of an exploration target and Freehill’s efforts to unlock value from the Yerbas Buenas Project, we are initiating coverage with a neutral view.

THE BULLS AND THE BEARS

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THE BULLS SAY

  • Freehill Mining is generating cash flow from its iron ore mine and has identified the potential to further increase near-term production rates.
  • The Company has extended its offtake agreement with CAP, Chile’s largest iron ore producer, ensuring the continued mining operations and licensing
  • Formalising an exploration target is the next step towards expanding production at Yerbas
  • Planned exploration drilling is designed to appraise the technical and economic merit of expanding the existing trial operations into a larger scale
  • A recent placement alleviates balance sheet
  • Existing mining operations have the potential to fast track future reserve delineation and feasibility
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THE BEARS SAY

  • Operating the mine without a certified JORC compliant mineral resource or engineering study is a
  • Current mining operation at Yerbas Buenas are small-scale and do not eliminate the Company’s reliance on external
  • Considerable further capital and technical investigations are required to establish the feasibility and economic merit of the
  • Freehill Mining continues to rely on debt funding to carry out its planned objectives and risks surrounding its balance sheet remain present.
  • There may be delays in delineating a certified reserve and delivering feasibility studies.
Disclaimer

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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