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Celtic Resources (CER.L) : A Fallen Angel


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I made some great profits a few years ago on Celtic (CER.L),

and exited before its various legal dramas.


With the stock back down to 150p, I'm thinking it may be time to look

at getting babck in.


Let's discuss that here. And I'll kick off with an article and an Advfn link


Weekly Chart ... update // Daily chart



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Celtic Deserves To Be Reassessed In The Light Of The Eureka Acquisition.


Not a lot has been heard from Celtic Resources since it managed to extract US$80 million for its 20 per cent stake in South Verkhoyansk Mining Company, the holder of the license for the Nezhdaninskoye gold mine in Yakutia, Russia. Polyus, the gold mining arm of Russia’s metals giant Norilsk Nickel which produces a quarter of the country’s gold, was determined to get hold of Nezhdaninskoye as it is one of Russia's biggest gold deposits with a resource base of about 900 tonnes of gold in total reserves under Russian accounting standards. The way it went about it was an object lesson for any western company intent on developing a large Russian gold reserve without a powerful local partner at its elbow as AngloGold Ashanti has been finding out since it acquired Trans-Siberian Gold.


Anyway US$80 million is quite some ammunition for a junior mining company so Celtic has been spending its time this summer sieving other mining opportunities in the FSU and particularly in Kazakhstan where it already operates the Suzdal mine. Here commissioning of the sulphide treatment plant had had a fairly dramatic impact on gold production which rose by 180 per cent to 24,793 ozs in the first half of the year. The plant treated 123, 857 tonnes grading an average of 9.2 g/t gold and there is clearly room for growth in production as the annual capacity of the plant is 300,000 tonnes. Indeed in July 5,141 ozs was produced so the target for the year as a whole was originally pushed up to 60,000 ounces , but has since been reduced to 50,000 ounces due to lower than expected grades.


The sulphide plant incorporates BIOX® bacterial oxidation technology which came into operation in May last year. Since then various teething problems have been identified and overcome, though Kevin Foo, managing director, reckons that there are still some improvement to be made in throughput and gold recovery.It is the first time BIOX has been used successfully in the FSU and he points out that it had to cope with temperatures ranging from -40°C to +40°C during the year. Of the tonnage treated in the first half, 63,455 tonnes at a grade of 15.7 g/t came from the underground mine currently being developed and some more from open pits and stockpiles so the technology proved to be flexible.


Now a decision has to be made as to whether to expand the capacity of the plant as there are mines in the area with refractory ore who could contribute concentrate. First, however, the cash operating cost will have to be reduced from the US$483/oz in the first six months. The plant problems played a part in this, as did the pre-stripping of open pits, but higher fuel costs look like being a permanent problem. Kevin Foo reckons that improved economics may also involve a switch from using a contractor to having its own fleet of trucks. He also thinks that the mine is overstaffed and that its procurement activities could be run more efficiently. Whatever, he is on the case the costs should fall.


The 75 per cent owned Zherek open pit heap leach operation is only 28 kms from Suzdal and it had a disappointing first half as winter dragged on and transitional opres were encountered which do not leach as well as oxides. The result was a reduced production of 3,571 ounces compared with 4,611 in the first half of 2005. Things are now on the up, however, and production is expected to reach 12,000 ounces this year. The oxide ore, on the other hand is running out and Celtic has been carrying out technical and economic studies to see if it is worth trucking the ore to Suzdal. The latest opinion is that this should be possible and profitable and an increase in plant capacity to 400,000 tonnes is definitely on the cards now that SRK has confirmed a new JORC compliant resource estimate of 2 million ounces for the company’s gold assets..


In the meantime Kevin Foo is popping in and out of meetings as Celtic moves to buy back Eureka Mining which it spun off in 2004. A paper deal of 5 Celtic shares for every 16 Eureka is envisaged and it makes sense as Celtic has cash and Eureka needs some. It brings with it the Shorskoye molybdenum mine which is a joint venture with Kazatomprom in the same region of Kazakhstan as Celtic’s gold mines.. In September the partners announced that contracts had been signed for the sale of molybdenum concentrate and Eureka had just received its first cash payment of US$1.25 million so cash flow was underway. Kevin reckons that by spending between US$6 and US$10 million production could be cranked up to an annual rate of 3 million lbs of molybdenum by next year. “It doesn’t take a brain of Britain to see that 3 million lbs times at least US$20/lb adds up to quite a lot of money, “he says, “ but investors do not seem to have caught on.” He can be forgiven for being a bit sour about the investment world after the extraordinary treatment meted out to Eureka a couple of months ago by its Nomad which was written abut on Minesite at the time.


Eureka’s other main asset, the Chelyabinsk copper gold project in Russia, is significantly larger Back in July a pre-feasibility study was completed on the Miheevskoye copper deposit, which is just part of the project. A new JORC compliant resource estimate was announced with a total indicated resource amounting to 373.5 million tonnes grading 0.38% copper and 0.10 g/t gold to contain 1.42 million tonnes of copper and 1.20 million ounces of gold with more to come as the deposit remains open to the south and west.


Again investors seem to have overlooked the fact that this is not the only deposit which will be delineated. Another one, Tominskoye, has a resource of 250 million tonnes at higher grades of copper and gold and more will be discovered in the future as the project is a big one running down from Russia into Kazakhstan. An open pit is planned for the first five years at Miheevskoye , but the total mine life is expected to be twelve years with average annual production running at 81,000 tonnes copper and 55,000 ozs gold. A definitive feasibility study should be completed before the middle of next year and commissioning is expected to start in the third quarter of 2009. The enlarged Celtic now has plenty of potential and a lot of work to do. Acquisitions are mentioned as a possibility, but they need to be very good and very cheap as the current portfolio deserves priority when the money is being spent.




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Company Web Site.....: http://www.celticresources.com/

Advfn thread w/ chart: http://www.advfn.com/cmn/fbb/thread.php3?id=13121096

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(here's what they said in December when they acquired Eureka):


Group Strategy


It is Celtic's intention to increase its gold and other resources and production

both organically and by acquisition. The acquisition of Eureka provides further

resources of some 1 million ounces of gold and is expected, in time, to provide

annual production of approximately 55,000 ounces of gold from the Chelyabinsk



For many junior companies the environment for raising capital and debt finance

for projects is appreciably more difficult than in previous years. Smaller com

panies are competing with larger, better financed local and international compan

ies for assets in the FSU and we are witnessing a changing landscape in markets

and politics. The Directors of Celtic believe that this environment will become

even tougher for smaller companies and that a consolidation of interests with

like-minded companies in the FSU will result in a lowering of the risk profile

and creation of stronger and more attractive investment vehicles for existing

and future shareholders. This consolidation will also mitigate some of the risks

of operating in the FSU.


The Directors of Celtic believe that the key benefits of the acquisition of

Eureka are:



•an enlarged group that has a strong balance sheet and a sound operating

record in the FSU with the intention of continuing the development of

Eureka's assets;


•the enlarged group will have two operating gold mines and an operating

molybdenum mine, all in the same region in Kazakhstan which will enable cost

savings and maximum use of expertise across the enlarged group;


•the enlarged group will have the capacity to expand existing production

at its mines, develop strong working relationships with FSU partners and

accelerate the development of the Chelyabinsk Project; and


•the execution of Celtic's plans to make further acquisitions of

appropriate assets in the FSU which will benefit and add value, increase the

scale of the Enlarged Group and create a more attractive investment vehicle.


Commenting on the acquisition, Celtic's Chairman, Peter Hannen said 'Eureka has

some outstanding projects with excellent management. We fully intend to maximise

the value of these for all shareholders as we continue to evaluate appropriate

merger and acquisition opportunities in the FSU.'

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24 January 2007, Wednesday

Celtic Resources. Turnaround story at very distressed multiples


Full version (PDF; 162,06 kB)


We reinitiate coverage of Celtic Resources with a Buy rating;


We believe the market is ignoring its growth potential and strong balance sheet. Celtic’s shares have slowly dropped to recent lows of $2.8 from their 2006 high of $6, reflecting the general weak sentiment towards AIM-listed mining juniors, investor concerns over the questionable acquisition of Eureka Mining, and management’s inability to find good use for the funds received for Nezhdaninskoye. At current price levels, however, we think the market is exaggerating the negative news, while ignoring Celtic’s medium-term growth potential and strong balance sheet. Adjusted for $66mn in cash, equity holdings, and financial receivables, the value of the company’s core assets becomes $102mn, which we consider cheap for a 60,000oz producer set to increase its output 80% by 2008F.


Solid operating, financial performance in 2006; strong growth expected in 2007F-2008F. Based on 1H06 actual results and 2H06 operational updates, we expect Celtic to report gold production of 63,000oz in 2006, up 66% y-o-y. We expect to see production growth accelerate in 2007F-2008F once the company begins mining higher grade ore at Suzdal. Strong financial performance should follow: Celtic generated $11mn in EBITDA and $6mn in operating cash flow in 1H06, a material improvement over negative cash flows in 2005. We expect strong cash flow generation to be sustained in 2007F-2008F as production volumes climb and G&A costs decrease in the wake of smaller legal expenses.


Comparative financial multiples support over 100% upside; DCF suggests 42%-65% upside potential. The company trades at a 2007F EV/EBITDA of 3.4X, against a Russia/FSU average of 11.2X. Similarly, it trades at a 2007F P/E of 9.6X against a Russia/FSU average of 23.2X. Both of these suggest upside of more than 100%. The company also trades at $1,971/oz of gold produced in 2006F against a Russia/FSU average of $3,639/oz. Celtic looks fairly valued on a resource basis, however, at $64/oz of resources against a Russia/FSU average of $53/oz. A combination of low earnings multiples and high resource multiples suggests the market gives Celtic no credit for potential reserve additions despite a $66mn cash pile (end-2006F) and strong expected FCF generation in 2007F-2010F. From the DCF perspective, using a WACC of 12.7% and a long-term gold price of $500/oz, our end-2007 fair value is $3.95/share excluding any exploration value for Russian copper assets, and $4.58/share including it. This suggests 42%-65% upside.


Possible triggers for 2007 include M&A activity, strategic partners for copper; management execution is the key. We see possible value-accretive M&A deals as perhaps the major catalyst for the company in 2007 as Celtic’s ample financial resources represent a major competitive advantage. Alternatively, Celtic’s low valuation could make it an attractive acquisition target. Finding a partner for a JV to develop Mikheevskoye would also be seen as very positive news. Finally, some cash could be distributed among shareholders in dividend form, which we believe would highlight the low valuation of the company’s core business. Investors should note, however, that achieving a turnaround and reviving the stock price strongly depend on management execution of the growth strategy; the gold price is another major risk factor


@: http://www.advfn.com/cmn/fbb/thread.php3?i...096&from=58

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