Company Overview: Aeon Metals Limited (ASX: AML), formerly known as Aussie Q Resources Limited, is an Australian-based mineral exploration company, which changed its name to Aeon Metals Limited in August 2012. It was incorporated in 2006. The headquarter of the company is situated in Sydney, New South Wales, Australia and is being currently headed by Mr. Paul Harris – the Chairman. It has an extensive exploration tenement portfolio in the world-class Mt Isa mineral province in North West Queensland; as well as the Rawbelle district in South East Queensland. It has the potential of exploring copper, gold, lead, zinc, cobalt, molybdenum and silver.
 

AML Details

High Grade World-Class Copper-Cobalt Project – Key Driver for Overall Growth: Cobalt and Copper market is becoming more mature at the back of rising demand from the battery sector. As of now, cobalt batteries contribute to the leading battery technology, and in turn, we are seeing demand for cobalt sulfate, and in particular, high-purity sulfate. Recently, Aeon Metals Ltd has released excellent step-out drilling results in which the company exhibited the presence of high-grade copper-cobalt zones along the strike from the known Resource at its 100%-owned Walford Creek project in Queensland. As per the release, the company provided assay results from hole WFPD at Walford Creek i.e., 18m @ 1.39% Cu, 0.11% Co and 32g/t Ag from 390m from the hole WFPD292 drilled 2.5km to the west of the current Resource, and 19m @ 1.20% Cu, 0.10% Co and 23g/t Ag from 348m from hole WFPD304, drilled 3.7km to the west of the current Resource. These are the best copper grade assays to date in the PY3 outside the Resource. It reflects the positive developments at Walford Creek project and ensures its progression of high-grade copper and cobalt zones 3.7km to the west of the existing Resource. Hence, we expect that these results will be an advantage to AML and provide the potential for small-scale, high grade, copper-cobalt-zinc production in years ahead.

 
Walford Creek Project (Source: Company Reports)

Quarterly Cash Flow Update (30 June 2018): The Company released its Quarterly Cashflow report for the quarter ended 30 June 2018 wherein cash outflow from operation recorded $3.16 million which was up by around 308 % as compared to the previous quarter. The rise in cash outflows was mainly related to the increase in exploration & evaluation cost (approximately $ 2.38 million) incurred during the same period. The Company had $12.70 million in cash at the end of the June 2018 quarter. Further, the group estimated cash outflow for the next quarter of approximately $6,793k, comprising of exploration and evaluation expenses ($5,700k), employee cost ($580k), and administrative and corporate costs ($513k).


Estimated cash outflows for next quarter (Source: Company Reports)

Drill program at Walford Creek Project: The company intends to focus on advancing the Walford Creek  project with activities including drilling, infrastructure study, metallurgical flow-sheet  assessment and environmental studies as well as for drill programs at Aeon’s existing Ben Hur and 7B projects in south east Queensland, Australia. As per the latest quarterly report, the company began a 30,000m drill program at Walford Creek Project in April and that program remained the focus of activity during the quarter and is expected to be completed by end of September month and the feasibility of extending the exploration portion of the program has been slated for October FY18. On the other hand, the company has completed drilling of 15,193m in 77 holes. This contains completed holes, some pre-collars yet to be diamond tailed and holes still progress at the end of the quarter. Additionally, 7 water boreholes were completed for 655.5m in the area of the proposed Vardy open pit. We expect that this program has the potential to provide the strong positive catalysts for the company growth momentum in years to come.

Signed MOU with Mitsubishi – An Opportunity to Expand footprint into Asian Market: The group has recently signed a nonbinding Memorandum of Understanding (MOU) with Mitsubishi Corporation for the sale of Aeon’s Sulphuric Acid into offshore markets. Mitsubishi Corporation is the leading marketer and trader of Sulphuric Acid in the Asia Pacific region. We expect that this deal will provide a new insight into the acid market and a possible backstop to the domestic market.

Financial Highlights: During the first half of the year, loss after income tax expense amounted to $ 9.4 million in 1HFY18 against $ 0.80 million in 1HFY17 at the back of rise in administrative expenses, impairment loss, and other expenses incurred during the period. As a result, basic and diluted loss per share stood at 2.44 cents per share against 0.24 cps in the previous corresponding period. Net operating and investing cash outflows for the period amounted to $3.3 million, up by 22.3 per cent as on corresponding period in the prior year. As on 31 December 17, the Group had consolidated net assets of $ 63.02 million (1HFY17: $ 24.31 million) with the cash balance of $ 16.76 million and cash reserve of $ 1.86 million in 1HFY17.Apparently, the current ratio substantially increased from 0.15x to 38.42x in 1HFY18 from the prior corresponding period. It reflects that the group significantly strengthened its financial position during the period as a result of capital raising efforts and debt refinancing including significant repayment of existing debt. In January 2018, AML raised $1,078,335 through a Share Purchase Plan (SPP). This fund was slated for use to further pay down debt related to the OCP Asia Group. No dividends were proposed or paid during the period.


1HFY18 - Consolidated Statement of Profit and Loss (Source: Company Reports)

Other Key Updates: During the quarter, the company appointed Mr. Tim Benfield as General Manager of Walford Creek Project, effective from July 02, 2018. He has been engaged to co-ordinate all Walford Creek Feasibility items including amongst others mining, metallurgy, environmental, infrastructure and logistics, as well as to manage the permitting, construction and operation of the Walford Creek Project.

Stock Performance: We are optimistic on the company at the back of its clear and consistent exploration business model, the positive update on its exploration programs, cash position, ongoing development to produce high-grade copper and cobalt, and higher demand of its product mix in the market. Additionally, the company has programmed to complete more drilling at Whitewash to provide the data to allow a JORC-compliant resource to be determined and will also explore the other advanced prospects using geophysical methods and then drill test any newly discovered prospective zone. Regal Fund Management Pty Limited became the substantial holder of the group by holding 5.36 per cent voting rights. Meanwhile, the stock surged 40.0% in the last six months and up 11.11% in the past one week as on August 23, 2018. ROE as at December 2017 was (21.6 per cent) and as at June 2017, it was (26.5 per cent). Debt to Equity was 0.24x as at December 2017 as compared to 1.31x in June 2017. AML’s return on invested capital (RoIC) has also improved to (18.4 per cent) in December 2017 from (26.5 per cent) in June 2017. The financials are expected to improve with better resource updates expected by end of 2018 or early 2019. The NPAT from the negative zone is expected to be shifting to a favourable side in coming years in view of advanced stage projects and cost effective discovery. The group is trading at a discount and the price is around 32c for a market cap of circa $205 million; and there is now enhanced funding with better valuation expected while the stock can attract many acquirers. Considering the Group’s potential for significant resource growth, high demand of copper & cobalt and partnership with Mitsubishi Corporation which will help to sell the Aeon’s Sulphuric Acid into offshore markets with support from QLD government through another grant, we give a “Speculative Buy” recommendation on the stock at the current market price of 0.320, down 8.571% on August 24, 2018. 

 

AML Daily Chart (Source: Thomson Reuters)

 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.