# Avanco Resources Limited Q3 production results impress

- Link: https://www.directorstalkinterviews.com/avanco-resources-limited-q3-production-results-impress/412738796
- Published: 2017-10-27T06:58:04+01:00
- Author: Giles Arbor

**Avanco Resources Limited** (ASX:AVB) looks on course to exceed its 2017 full-year
production targets after a 3% quarter-on-quarter increase in copper output at its
Antas mine in Brazil in the three months to 30 September. Quarterly output of 3.7kt
took the year-to-date total to 10.8kt. Annualised, this puts Antas ahead of the 
upper end of management’s 2017 guidance range of 13.5-14.0kt (and our estimate of
14.2kt). With gold also ahead of budget (8.9koz year-to-date, versus full-year guidance
of 9.75-10.5koz and our 10.5koz) and market prices for both commodities buoyant 
so far in Q4, we consider the risks to our full-year revenue forecasts lie to the
upside. US Dollar-denominated C1 cash costs rose by 7.5% in Q3, owing mainly to 
strengthening of the local currency, and look likely to come in around the upper
end of full-year guidance of US$1.35-1.50/lb. But with copper currently above US
$3.00/lb the mine maintains an impressive operating margin, enabling Avanco to build
cash while also advancing its growth initiatives. An updated resource/reserve for
Antas and a scoping study for the CentroGold project are both due before year end,
with a feasibility study for Pedra Branca to follow in H1 2018 – these are significant
near-term milestones which we believe should add value and provide positive momentum
for the shares.

**Another solid quarter at Antas:** Q3 represented Antas’ best production performance
of the year so far, with copper output up 3% q/q to 3.7kt and gold output up 6% 
to 3.1koz. Annualised, the year-to-date production rates for both are ahead of the
upper end of management’s full-year guidance range of 13.5-14.0t copper and 9.75-
10.5koz gold (versus our 2017 full-year estimates of 14.2kt copper and 10.5koz gold).
C1 cash costs in Q3 were up 7.5% to US$1.57/lb owing mainly to strengthening of 
the local currency (though importantly, underlying costs in Brazilian Real are stable).
This takes year-to-date C1 costs to US$1.51/lb, just ahead of full-year guidance
of US$1.35-1.50/lb copper (and our estimate of US$1.41/lb). We will review our forecasts
as Q4 progresses, but with copper and gold both trading above our assumptions for
the period we consider the risks to our revenue estimates lie to the upside (offsetting
any potential negative impact to our forecast margin from potentially higher USD
costs).

**Cash builds:** The higher quarterly production together with further strengthening
of the copper and gold price resulted in record quarterly free cash flow generation
from operations of US$7.2m. This enabled Avanco to build its cash position by 8%
to US$28.5m whilst also investing in it its project pipeline – US$2.6m was spent
on exploration and evaluation work during the quarter and US$2.0m was spent on accelerating
the acquisition of 100% ownership of the CentroGold project. A scoping study of 
the latter is due by year end, as is a revised resource and reserve estimate for
Antas (which we expect will prolong the currently scheduled life of the mine).

**Investment view:** Avanco is trading at a significant discount to our NAV estimate
of A$0.18/share, which we see scope to increase as CentroGold advances. We believe
this should narrow as copper continues to firm and as Avanco further optimises Antas
and de-risks and ultimately develops both CentroGold and the Pedra Branca project.

Share on: