Avanco Resources Ltd (ASX:AVB) has received a Buy recommendation from broker Hartleys, with a price target of $0.11 in 12-months, and a valuation of $0.15.
Shares in the company last traded at $0.062, providing significant upside based on the valuation.
The following is an extract from the report.
Antas constructed, commissioning and ready to ramp-up
Avanco Resources has announced the Antas development in Brazil is nearing the completion of commissioning and ramp-up to steady state production is expected during the JunQ.
At full production levels the project is estimated to produce ~12ktpa Cu & ~7kozpa Au for the next ~10 years.
The initial processing results from Antas suggest the metallurgical characteristics of the orebody are in line with our expectations and modelling.
The process plant commissioning delivered recoveries of ~90% Cu and ~84% Au and concentrate grades of 28% Cu and 5g/t Au.
The Antas project looks increasingly likely to be constructed and operated on time and under budget.
Potential to fast-track Pedra Branca (Stage 2) with a "trial mine"
The Company is currently evaluating the potential for the early development of the Pedra Branca East deposit.
The revised strategy is cognisant of the current copper market sentiment and is focussed on a low capex small scale "trial mine" as a first step towards full scale construction and production.
The small scale mine at Pedra Branca will focus on the high grade underground ore from the hanging wall high grade zone (HW-HGZ) which would be transported to the Antas plant for processing.
The Pedra Branca ore could potentially utilise the spare capacity in the Antas processing plant.
The Pedra Branca ore has very similar metallurgical characteristics to Antas and will be of a comparable grade (good for blending).
The Company is looking to confirm the spare capacity and/or enhancements required to the Antas processing plant over the coming quarters.
Infill drilling delivers significant high grades at HW-HGZ
AVB has undertaken infill drilling of the shallow HW-HGZ at Pedra Branca to upgrade the confidence of the resource where the "trial mining" is likely to commence.
The drilling highlighted significant high grade intercepts within the broad, lower grade system; 8.05m @ 3.69% Cu, 1.46g/t Au; 2.5m @ 5.62% Cu, 0.61g/t Au; 2.3m @ 10.36% Cu, 2.21g/t Au.
This drilling is a good example of the high grades that would be targeted in a small scale "trial mining" scenario.
The initial mining would target the narrow, higher grade zones with potential to mine the lower grade zones once the full scale Pedra Branca mine and plant has been established (assuming pastefill we see minimal sterilisation of the lower grade mineralisation).
Antas built, Stage 2 fast-track, upgrade to Buy (from Spec Buy)
AVB is nearing completion of the Antas mine development in line with timing and cost guidance.
The Company has now successfully built a base metals mine in one of the most difficult resource funding environments we've seen in a long time.
The success of the Antas development is testament to a robust Cu-Au project and a seasoned management team.
Avanco has a clean balance sheet with no debt and ~US$20m of cash which positions the Company in a strong position to investigate funding options for Pedra Branca.
We now look forward to the progress at Pedra Branca and the next stage of the Avanco story.
We see potential for combined group production in the order of ~50ktpa Cu from both projects over the coming years, AVB remains well positioned and leveraged to further appreciation in spot Cu-Au prices.
We upgrade to a Buy recommendation (from Speculative Buy), and our price target is 11cps, NAV of 15c, spot NAV of 5c.
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