Nov 21 (Reuters) - Canadian precious metals miner Minefinders Inc’s plan to build a mill at its Dolores gold and silver project in Mexico hasn’t gone down well with investors, who are worried that the facility may be too big for the mine.
Minefinders’ shares have lost more than a fourth of their value since Nov. 7, when the company said it would go ahead with the 6,500-tonnes-per-day mill.
Is the share sell-off, which has sent Minefinders’ market capitalization below C$950 million, a good entry point for bargain hunters?
The mill, which will treat open pit ore and process additional underground ore, is seen by some analysts as a growth driver for the company, which gets all of its revenue from the Dolores project.
“If you didn’t have a mill, valuation (of the project) would be at least 20 percent lower. (With the mill) you can recover so much more and so much quicker,” said Scotia Capital analyst Trevor Turnbull, who has a “sector outperform” rating on the stock.
Of the 10 analysts covering the stock, six rate it either “strong buy,” or “buy,” while three have “strong sell” or “sell” ratings, according to Thomson Reuters data.
The company approved the mill without waiting for the technical report, a move that has been panned by some analysts who think it’s too big for the Dolores project.
But most analysts said the fuss about the lack of details was unwarranted.
“Why would people say it’s too big for the project? The mill they are discussing is 2-million-tonne-a-year and they have about 25 million ounces of millable material that they have defined and that gives you over 10 years of material for mill,” Turnbull said.
Construction of the mill is expected to begin in the next six months.
“A company such as Minefinders is always looking for growth potential and this mill offers them some growth potential inhouse,” Salman Partners analyst David West, who has a “buy” rating on the stock, said.
SELL ON HALF-BAKED PLAN
However, some analysts said the company was rushing into the facility without thinking about the long-term implications.
“The company did not provide a high degree of confidence that this was an operation that was operating up to where they said they would,” Mackie Research Capital’s analyst Barry Allan said, adding that a mill would stretch the project.
Some analysts said the size of the mill would force Minefinders to dig lower grades of gold to keep the mill running at its full capacity.
The mine has total proven and probable reserves of 107.6 million tonnes, with 0.58 grams of gold per tonne, according to the company’s website.
“6,500 tpd capacity is too large for the Dolores deposit, as we suspect that Minefinders will have difficulty sourcing enough ore for the mill,” said CIBC analysts, who have a “sector underperformer” rating on the stock.
Analyst sentiment on the stock has slipped, with the mean recommendation slipping by 6 percent in the last three months, according to Thomson Reuters data.
“We remain concerned that the company is proceeding without a well thought-out or communicated plan for the integrated operation,” TD Securities’ analysts Steve Green and Scott Parsons wrote in a recent note. (Reporting by Aftab Ahmed in Bangalore; Editing by Saumyadeb Chakrabarty)