Site visit confirms our view of the project
. Recall, the feasibility study released earlier this year suggested that for initial capital
of US$474.3 million, the Ilovica-Shtuka project would produce 167k oz AuEq for 20+ years at all-in sustaining costs of US$372/oz AuEq. This provided
the project with a post-tax NPV5% of US$440 million and a post-tax IRR of 17.8%. While the overall project grade is not impressive (P&P reserves,
0.32 g/t Au and 0.21% Cu), the low strip ratio (1:1) and simple logistics make the project work. The topography suits the project as Euromax plans
to remove the side of a hill (Figures 1 and 2). We note that the ongoing Front End Engineering Design (FEED) study is likely to result in a slightly
higher strip ratio in the early years of the project (vs. the feasibility study); however, the overall strip ratio is likely to remain unchanged. While
the topography does present some design challenges, the relatively compact site (Figures 3 and 4) allows for simple on-site logistics and the proximity
to the off-take partner, Aurubis’s smelter (300 km by highway,) provides for low concentrate transportation costs.
On the path to production
. As mentioned, Euromax has started a FEED study which is both working to optimize the project and set final
designs for long lead time items. This study should help de-risk the engineering and initial construction of the project and once the EPC contract
is rewarded, de-risk the initial ramp-up. As well, the company appears to be aggressively building its in-house technical team. They have added, where
required, non-Macedonian technical support but have also supplemented this team where possible with local talent. As well, the company is building
out its non-technical team with key roles being primarily staffed with Macedonians. We view this is as important both from a government relations perspective
and the long-term viability of the project.
Ilovica-Shtuka project is key for Macedonia. It is often the case that mining projects bring significant benefits to the local economies
in which they are developed, and Ilovica-Shtuka project is not an exception. The project is expected to represent 1-2% of Macedonia’s GDP and provide
a significant number of jobs in Strumica, the local community. As a consequence, we expect the company to receive approval for the ESIA filed earlier
this year. We note that there is an election in Macedonia in December of this year, and we expect that this may delay ESIA approval to the New
Year. However, it is our understanding that both the current Prime Minister and Leader of the Opposition support the project. While slightly delayed,
we expect the project to receive permits because of both this support and its importance to the Macedonian economy.
Discounted per ounce valuation not reflective of projects potential or funded status. Euromax trades at C$16/oz versus similar development
stage peers at C$42/oz. Considering this project’s advanced stage, meaningful scale, funded status, albeit with debt, and near-term permits, it
should trade at least in line with peers. We note that Euromax trades at substantial premium to peers on a consensus NAVPS basis (1.47x vs. peers
at 0.78x); however, consensus estimates appear to be out of date. We would also note that since our visit, Euromax announced its intention to raise
C$35 million (pricing to be determined), which besides strengthening the balance sheet (repay debt) and providing sufficient cash to fund engineering
activities prior to project construction, we expect this raise to improve the liquidity of Euromax’s shares. In our view, the pending permits are
likely to be a key catalyst for the stock in early 2017 but the stock should also benefit from ongoing de-risking (engineering work).
Company Description: Euromax Resources (TSX:EOX) is an exploration and development company focused on its flagship copper-gold Ilovica-Shtuka
project in Souteast Macedonia that hosts a resource of 5.4M oz AuEq (257M tonnes at 0.32 g/t Au and 0.21% Cu). The company’s Feasibility Study
on the project suggests initial capex of US$474 million and annual production of 83k oz Au and 16k tonnes copper over an estimated mine life of
Derek Macpherson | VP Mining Analysis
Sunneva Bernhardsdottir | Associate, Mining Analysis
Victoria Ellis Hayes | Associate
Red Cloud Klondike Strike Inc.
79 Wellington St. W. Suite 1630, PO Box 148,
Toronto ON., M5K 1H1
Red Cloud Klondike Strike Inc. is registered as an Exempt Market Dealer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New
Brunswick, Nova Scotia, Prince Edward Island, Newfoundland & Labrador, and the Yukon. Part of Red Cloud Klondike Strike Inc.'s business is
to connect mining companies with suitable investors that qualify under available regulatory exemptions (the "Red Cloud KS Business").
Red Cloud Klondike Strike Inc., its affiliates and associates, and their respective officers, directors, representatives, researchers and members
of their families (collectively, "Red Cloud KS") may hold positions in the companies mentioned in this publication and may buy
or sell, or buy and sell their securities or securities of the same class on the market or otherwise. Additionally, Red Cloud KS may have provided
in the past, and may provide in the future, certain advisory or corporate finance services and receive financial and other incentives from issuers
as consideration for the provision of such services.
Red Cloud KS has prepared this publication for general information purposes only, NOT as part of the Red Cloud KS Business.
This document should not be considered a solicitation to purchase or sell securities or a recommendation to buy or sell securities. The information
provided by Red Cloud KS for the purposes of this publication has been derived from sources believed to be accurate, but cannot be guaranteed.
Opinions or analysis contained in this publication may be subject to change and Red Cloud KS does not undertake to advise the reader of such changes.
This publication does NOT take into account the particular investment objectives, financial situations, or needs of individual
recipients and other issues (e.g. prohibitions to investments due to law, jurisdiction issues, etc.) which may exist for certain persons. Recipients
should rely on their own investigations and take their own professional advice before investment. Red Cloud KS will not treat recipients of this
publication as customers or clients by virtue of having viewed this report.
Company Specific Disclosure Details
Euromax Resources – TSX:EOX - 1
1) A member of Red Cloud KS team has visited/viewed material operations of the issuer.
2 In the last 12 months, Red Cloud KS has been retained under a service or advisory agreement by the subject issuer.
3) In the last 12 months, Red Cloud KS has received compensation for investment banking services.
4) Red Cloud KS or a member of the Red Cloud KS team or household, has a long position in the shares and/or the options of the subject issuer.
5) Red Cloud KS or a member of the Red Cloud KS team or household, has a short position in the shares and/or the options of the subject issuer.
6) Red Cloud KS or a member of the Red Cloud KS team own more than 1% of any class of common equity of the subject issuer.
7) A member of Red Cloud KS team or a member’s household serves as a Director or Officer or Advisory Board Member of the subject issuer.