Thor Explorations encounter exceptional gold grades

Thor Explorations

Thor Explorations Ltd (LON:THX) is the subject of Rodger Bell’s latest research note (Director, Mining Research at Hannam & Partners).

GICS sectorMaterials
Market cap (27-Feb-23)US$m: 128
Share price (27-Feb-23)C$: 0.27
Target priceC$: 0.80
Share price (27-Feb-23)GBp: 17
Target priceGBp: 45

Thor Explorations Ltd (LON:THX) has released initial results from an exploration drill programme underway at the Western Prospects, 15km west of its wholly-owned Segilola Gold Mine in Nigeria. The drilling follows up on high grade gold anomalism defined by exploratory soil/auger geochemical programs and rock chip sampling. These first holes confirmed the existence of a sub-vertical narrow quartz vein system, with several stand-out intersections including 1m @ 310g/t Au (i.e. 10oz/t) in Hole SGD238 within a 2m interval grading 227g/t Au from 80m depth. Meanwhile Hole SGD235 showed 14.32g/t Au over 3.1m from 28m. These very promising results show potential to develop a high-grade satellite mine as a supplementary source of ore for the Segilola plant. Near-mine drilling is also ongoing, which we expect to outline an underground resource and potential open pit extension to the current operation; we see this as an important catalyst for THX given Segilola’s short four year mine life based on current Reserves.

Preliminary results demonstrate significant exploration potential

The western JV prospects are located 15km west of the Segilola Gold Mine and cover mostly amphibolitic rocks that contrast with the more gneissic terrain of Segilola. Surface exploration comprising grid-based soil geochemical and rock-chip sampling identified outcropping quartz veins as drill targets. In the central parts of the Western Prospects, sampling defined an area measuring ~3km strike and 1km width oriented in a north-westerly direction. Initial soil geochemistry results returned values of 6.50 g/t Au towards the southeast area and rock chip sampling returned some high-grade values, including 65.1 g/t Au (pg. 2). Testing depth extensions was a key aim of the drill programme, with successful intersection of 2m @ 227g/t Au from 80m by SGD238. Further results include 3.1m @ 14.32g/t Au from 28m and 2m @ 6.24g/t Au from 46.5m from holes SGD235 and SGD236 respectively. SGD236 also appears to have intersected a parallel, lower-grade, mineralised structure ~10m to the east of the main vein. Soil sampling continues and several additional targets in the area require drill testing.

Nigerian elections, people went to vote last weekend

With more than 15 options on the ballot, over 85 million Nigerians went to vote over the past weekend with results expected by the middle of this week. We believe the leading candidates would, in general, be pro-mining as a main catalyst for diversification from Nigeria’s current dependence on the oil and gas sector.

Senior debt amendment and rescheduling alleviates liquidity tightness

Between Apr’20 and Dec’22 Thor’s wholly owned subsidiary SROL repaid US$25.6m of the US$54m senior debt facility which was for the construction of the Segilola gold mine. In Jan’23, terms were amended to remove or relax those more restrictive terms and conditions, allowing for a more flexible facility for SROL. Key amendments include removal of the project finance cash sweep requirement and release from restrictions regarding acquisitions, dividend distribution and some indebtedness covenants. Of the initial US$54m repayment amount, US$5.79m (20% of outstanding) is due in 2023 and US$22.6m (80% of outstanding) is due in 2024. This should allow Thor to work on growth opportunities in the near term, such as at the Western Prospects outlined above.

Valuation: 45p TP with cash flow now and catalysts on the horizon

Thor released solid Q4 production results on 10th Jan (see H&P note), including guidance for FY23 of 85-95koz, above the 76.9koz within the 2021 mine plan. Based on throughput achieved to date when processing material below the average Reserve grade, we believe this target range leaves room for outperformance. The Company remains well positioned to generate cash flow, buoyed by a 5-year tax holiday, and further strengthen its balance sheet with its repayment profile now reduced. Segilola’s mine life still holds potential for expansion and we continue to apply a 0.5x multiple on an assumed five-year extension to our discounted cash flow model, with 1x applied to the remaining four-year Reserve, to give a risked contribution to our sum-of-the-parts of ~C$565m from the project. Including an assumed C$25m for Thor’s 70% interest in Douta, we derive a risked target of C$0.80/share (GBp 45/sh), implying 196% upside from the current share price.

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