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Tuesday, June 27, 2017 Derek Macpherson

IDM Completes Feasibility Study for Red Mountain


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IDM Mining Ltd. (TSXV:IDM) reported results from the feasibility study completed for its Red Mountain project in B.C. The feasibility study saw improvements over the 2016 PEA highlighting a slightly longer mine life along with improved grades and recoveries for both gold and silver. Costs increased; however, NPV improved to C$104 million after-tax with an IRR of 32% (Figure 1). Considering the increased engineering needed to complete a feasibility study (vs. a PEA), we view the study as neutral for IDM, since despite higher costs it is an important milestone (both permitting and engineering) as IDM advances Red Mountain towards production. Exploration continues to expand resources, as the company remains focused on extending the project’s mine life while advancing it towards production. IDM trades at a discount to peers on a consensus P/NAV basis (0.47x vs. peers at 0.61x) and on a per ounce basis (C$44/oz vs. peers at C$62/oz).



Grade, tonnage, production rate and mine life all benefit from 2016 exploration program. Mineable reserves increased by 9% (to ~2.0Mt), while improvements in gold grades (8%) and silver grades (2%) were recognized. The underground mining operation should see LOM average annual production of 78k oz Au and 220k oz Ag, an increase of 11% and 13% compared to the 2016 PEA. The recent resource update provided an indication that a longer mine life at higher grades was likely. Recoveries improved slightly, by 2% (Au) to 90.9% and by 7% (Ag) to 86.3%, which should help benefit project economics. Differently to the 2016 PEA, months mining was increased from originally 8 months to year-round operations. Mine life is ~5.4 years, with exploration currently underway to expand resources and extend the mine life. Exploration has already confirmed mineralization 800m north of current resources, noting recent exploration results highlighting the opportunity for further extension.

Costs increase but NPV improves. Total cash costs increased by ~24% to C$647/oz and total initial capital costs increased by ~22% to C$136 million. However, After-tax NPV increased to C$104 million over the 2016 PEA (C$86.6 million), while IRR remained relatively unchanged at 32%. Partially offsetting higher costs, was the increased mine life and production profile, noted above; however, economics also benefited from the use of a lower exchange rate (0.76 CAD/USD vs. 0.80 CAD/USD in the PEA) and a higher silver price (US$17/oz vs. US$15/oz in the PEA). We note that both updates reflect current market prices and exchange rates. The company notes options exist to reduce costs by purchasing used equipment and sharing infrastructure costs for road and powerline.

Study and current valuation not reflective of resource growth potential. Following the completion of the feasibility study, the company remains focused on exploration to expand resources and extend the project's mine life. We expect additional results from the ongoing 2017 drill program along with the project’s ongoing de-risking (engineering and permitting) to be positive for the stock, as it works towards construction by mid-2018. The company plans to file a Project Application Report in early July. IDM continues to trade at a discount to peers on a consensus P/NAV basis (0.47x vs. peers at 0.61x) and on a per ounce basis (C$44/oz vs. peers at C$62/oz).


Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
 
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IDM Mining Ltd. - TSXV:IDM - 1,2,3,4

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