Forrestania Resources Ltd (ASX: FRS) recently released prefeasibility studies for four separate mining projects in Western Australia, which, if developed, will keep the company producing gold for more than 10 years.
Bell Potter has run the ruler over the projects and has actually reduced its price target on Forrestania shares, while maintaining a very bullish outlook for the company.
I’ll get to that price target shortly. First, let’s look at what Forrestania is proposing.
Mining projects working through central hub
The company plans to develop four mining projects, which all process their ore through the Edna May processing facility.
The developments are costed with an assumed gold price of $5500 per ounce, compared to the current price of gold, which is $6130 per ounce.
The Edna May project alone is expected to generate $728.7 million in cash flow over a 10-year mine life, while costing only $98 million to develop.
Using a gold price of $6,140 per ounce, the cash flow figure rises to $961 million.
Forrestania said there is potential upside from upgrading inferred mineral resources within the current pit shell, which are currently treated as waste and excluded from the production target.
Forrestania Chairman David Geraghty said:
The Edna May Ore Reserve and Pre-Feasibility Study provide a strong technical and economic basis for the redevelopment of this established gold operation. The study benefits from substantial existing infrastructure, a proven processing facility and a long operating history, while identifying a clear pathway to restart and future production. With a 400,000-ounce Probable Ore Reserve underpinning 100% of the production target and strong projected cash generation at the PFS gold price assumption, Edna May is expected to form a key part of Forrestania’s Westonia Hub strategy.
Three other mining projects will also feed into Edna May. These are the British Hill, Tycho, and Johnson Range projects.
ASX gold shares looking cheap, broker says
Bell Potter said in its research note to clients that the cost of gold production came in higher than they had expected at $3,329 per ounce.
The broker added:
On a filled two-hub configuration we see a pathway to improving on this figure, offering valuation upside. We anticipate further reserve announcements on the remaining deposits and those that incorporate Lake Johnston in due course. FRS is sufficiently funded to first production, subject to completing the proposed $100m facility. FRS remains underrated, in our view, with significant upside through a dual processing hub and >200koz steady state capabilities.
Bell Potter has a $1.05 price target for Forrestania, compared with the current price of 33 cents.
The company is valued at $802.9 million.
The post 4 reasons this ASX gold stock could more than triple appeared first on The Motley Fool Australia.
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More reading
- Forrestania Resources extends Zenith Minerals takeover offer again
- Forrestania Resources reports high-grade gold intersections at British Hill
Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.