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In the news: MYCELX Technologies & White Rock Minerals

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MYCELX TECHNOLOGIES*†
LON:MYX | 28p | US$7.6m | Buy | TP : 80p
2015 Financial Results
MYCELX Technologies has released its financial results for the year ended 31 December 2015. Revenue for the year was as guided at US$13.6m, consistent with the 2014 figure, with SG&A falling by 16% YoY to give net cash at the end of the period of US$3.7m. The gross profit margin remained strong at 53%, driven by high-margin equipment lease contracts, and adjusted EBITDA was (US$1.7m). The company also paid off its line of credit balances during the period. Revenue was strongly weighted (78%) towards the Middle East, and we understand repeat business from high-profile clients, including SABIC and affiliates, continues to prove key to underpinning the revenue line.
Operational highlights included the successful completion of a petrochemical plant turnaround project (annual shutdowns for equipment cleaning), where the MYCELX system is particularly suited to treating the potentially high contaminant washdown water to stringent discharge requirements within a tight timeframe. The company continued to operate its four installations in petrochemical plants in Jubail City, Saudi Arabia, with two operating leases being extended during the year with key client SABIC, and a two-year extension on a further SABIC lease being signed post-period end for a value of US$5m.
In the US, a third sale was made to a terminal operator for water treatment for discharge into the Houston ship channel, expected to be installed in 2Q16. As we understand, MYCELX is the only company to treat oil terminal wastewater to a standard whereby it can be discharged directly into the ship channel, and the company’s prior two contracts provided full wastewater treatment for fuel oil terminals with combined storage capacity of over 20MMbbl. The company’s installation on the Jack/St Malo platform also became operational in 2015, which should provide an uplift to recurring media sales revenues as production ramps up.
New contract awards during the period included the lease of a water reuse and recycling system for a hydraulic fracturing application in the West Texas shale. The shale industry has not historically been a key focus for the company, with operators tending to manage water via trucking or reinjection into disposal wells following minimal treatment. However, increasing water stress in the southern states, the rising value of oil vs. water as a commodity and tightening regulations have combined to create an appetite for new treatment technologies, and MYCELX is hoping this award will be a step to broader market capture. The MYCELX system continues to be trialled for EOR applications in Canada and India, and in the upstream space in Mexico, from which the company is looking to progress to new contract awards.
Post-period end, the company completed its first successful trial in offshore Nigeria, secured a lease to purchase agreement for downstream process water in Oman, and secured a lease for process water treatment at an Oklahoma refinery. The company also augmented the business development team with experienced oilfield services personnel, whilst simultaneously focusing on continuing to cut SG&A, which we estimate should fall by a further ~30% in YoY in 2016. Whilst we predict oil price headwinds will continue to weigh on top-line revenue and the near-term timing of contract awards, the company guides that cost cutting should enable cash neutrality from operations to be achieved in 2016. We maintain our Buy recommendation, with a DCF-based target price of 80p. 
 

WHITE ROCK MINERALS††
ASX:WRM | A¢1.7 | US$5.0m
Exercises Option to Acquire Red Mountain Project
Having completed the acquisition of Atlas Resources on 26 April for an all-equity consideration, White Rock Minerals has now exercised Atlas’ option to acquire the Red Mountain VMS Project from Metallogeny, becoming the 100%-owner. White Rock’s portfolio already includes the Mt Carrington Gold Project, with NPV10 of US$44m and >100% IRR, and Red Mountain adds exploration exposure in the zinc space, a commodity widely forecast to fall into supply deficit in the near-to-mid term.

Red Mountain comprises Dry Creek and West Tundra Flats, with historical resources of 5.7Mt at 5% Zn, 2% Pb and 120 g/t Ag — Historical estimates are sourced from prior owner Grayd Resource Corp, based on drilling completed between 1996 and 1998. Drilling highlights to date include grades of 26% Zn and 12% Pb over 5.5m at Dry Creek, and 7% Zn and 4% Pb over 3m at West Tundra Flats. Preliminary metallurgical test-work has indicated recoveries of over 90% Zn, >80% Au and >70% Pb & Ag. Statistical analysis of VMS clustering patterns indicates that, further to Dry Creek and West Tundra Flats, the Red Mountain camp has the potential to host a sizeable 10-15Mt deposit with similar Zn, Ag and Pb grades.
Updated scoping study for the company’s Mt Carrington Au-Ag project gives an NPV10 of US$44m with an IRR of over 100% — Capex for the seven-year LoM project remains low at A$24m, with a capital payback of <1 year, while opex estimates have been revised down to give project C1 cash costs of under A$800/oz (>US$600/oz). The initial 2014 scoping study was revised in mid-2015 to reflect the more favourable Australian gold price environment, and the incremental improvements to project economics are shown in the table below.
Improvements to Mt Carrington Project Economics between Scoping Study Updates

Downward opex revisions were primarily sourced from a softening in the labour market and lower assumed power costs following reassessment of ore characteristics and flow sheet design — With estimated C1 costs of ~A$750/oz, at an A$1,600/oz gold price the project would achieve operating margins of over 50%. In terms of capex, the Mt Carrington Project benefits from existing infrastructure valued at ~A$20m within the approved mining leases, comprising: a 1.5Mt tailings dam, 750ML freshwater dam, a reverse osmosis plant, access to grid power and a site office.

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