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YTC Resources Receives Buy Recommendation And $0.42 Price Target From Bell Potter

YTC Resources (ASX: YTC) has received a buy recommendation from Bell Potter and a $0.42 price target, which is 50% higher than the last traded price of $0.28.

The following is an extract from the report.

Cobar copper and gold, ready to roll

Two new mines expected by 2015

Gold and base metal (Pb-Zn) mining at YTC's Hera operation, near Cobar, NSW, could start in 2013 subject to funding. The nearby Nymagee operation could be producing copper-rich concentrates from 2015. Recent drilling has been successful and we expect both resources to grow. The Cobar Basin is renowned for long-lived gold and base metal operations, such as Glencore's +40 year, +1.5Mt Cu, CSA Mine.

Key Points: metal credits mean low costs

- Focused on gold, base metal and tin mining and exploration in NSW, including the Hera-Nymagee Project in the underexplored Cobar Basin.

- Hera (677koz AuEq @ 8.6g/t) could be in underground production (Stage 1) within 12 months: initial seven years at average 65kozpa AuEq (gold-equivalent), opex $830/oz AuEq, including 36kozpa Au. Capex $73.5m to first ore.

- Nymagee (126.3kt Cu @ 1.56%) could be in underground and/ or open cut production (Stage 2) from 2015. Hera-Nymagee combined production FY14-20 averages 115kozpa AuEq at $848/oz (or 36kozpa Au, $288/oz with credits).

- Hera-Nymagee revenue $1.4bn over 9.5 years, EBITDA $553m. Average P/E 2.

- Potential for resource upgrades and discoveries at Hera-Nymagee to expand and extend production; numerous exploration targets on +70km strike.

- Major shareholders and potential offtake partners: Glencore; Yunnan Tin Group.

Investment comment: Buy (Speculative), target $0.42/sh

YTC's Hera-Nymagee is an excellent mid-tier gold and base metal project in the Cobar Basin, a province overlooked by recent explorers. Hera (Au-Pb-Zn-Ag) is ready for mine construction. Board changes reflect a shift towards production.

Potential nearterm catalysts for the share price: project funding of ~$100m, offtake agreements; and the start of Hera development. Drilling has been successful and more good news is likely. We expect Hera-Nymagee to grow and YTC along with it. Upside to +$0.56.

Investment thesis

Hera-Nymagee is a mid-tier gold and base metal project, in a highly prospective yet overlooked metal province, the Cobar Basin. Geological similarities to the 1.5Mt Cu CSA mine and +7Moz AuEq Cobar Gold Field, supported by recent discoveries such as the Hera North lens and a northern extension to Nymagee, show there is potential for Hera-Nymagee to grow into a multi-mine, long-lived centre of gold and base metal production.

Combined Hera-Nymagee production (two mines) under the current strategy could be +135kozpa in gold-equivalent terms (combined Au, Cu, Pb-Zn, Ag). Average for FY14-20 could be 115kozpa AuEq at $848/oz (or 36kozpa Au, $288/oz with credits). Revenue could be $1.4bn over an initial 9.5 years, with EBITDA $553m ($60m/yr).

On a recent Bell Potter site visit we saw that with infrastructure, earthworks and critical permitting in place, the initial mine at Hera (Au-Pb-Zn-Ag) is ready for underground development, subject only to ~$100m in funding.

Key changes to the Board, with founders Richard Hill and Steve Woodham leaving in favour of miners Gary Comb (Jabiru) and Mark Milazzo (NYSE:WMC), reflect this shift in focus from exploration and development to production.

Likely newsflow and share price catalysts (Bell Potter estimates)

2H12

- Project funding of ~$100m.
- Offtake agreements (potentially with shareholders Yunnan Tin and/or Glencore).
- Mining Licence for Hera and commencement of the Hera mining decline.
- Updated BFS including Nymagee Cu-Pb-Zn production
- Further exploration success is likely, focused on downhole EM targets.

1H13

- Construction of Hera processing plant.
- Permitting process for Nymagee.

2H13

- Possible commissioning of Hera plant.
- First Au-Pb-Zn ore from Hera mine, after 9 months of development.

2014

- Construction of copper expansion to processing plant for Nymagee ore.
- Development of Nymagee Mine.

2015

- Mining of Cu-Pb-Zn at Nymagee.

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