Hummingbird Resources is a gold mining company focused on developing the Yanfolila Gold Mine in Mali. The company is listed on the London Stock Exchange and has seen its share price fluctuate significantly over the past few years. For investors considering whether Hummingbird Resources represents a good investment opportunity, there are several key factors to evaluate.
Overview of Hummingbird Resources
Hummingbird Resources was founded in late 2005 and has been focused on exploring and developing gold projects in Mali and Liberia. The company’s main asset is the Yanfolila Gold Mine in southern Mali, which achieved first gold production in December 2017. Yanfolila is estimated to have gold reserves of approximately 1 million ounces and an initial mine life of at least 7 years.
In addition to Yanfolila, Hummingbird owns the Dugbe gold project in Liberia. Dugbe has estimated resources of 4.2 million ounces of gold but has not yet progressed to development or production. Hummingbird also holds a portfolio of exploration licenses in Mali, Guinea, and Cote d’Ivoire. However, the company is focused primarily on continuing production and exploration at Yanfolila.
Hummingbird’s management team has extensive experience in the mining industry in Africa. The company is led by CEO Dan Betts, who previously worked for AngloGold Ashanti and Gold Fields. The operational team is headquartered in Bamako, Mali with corporate offices in London.
Financial Performance
As a relatively young gold producer, Hummingbird is still working to ramp up production and achieve profitability at its Yanfolila mine.
In the first half of 2022, Hummingbird produced 50,672 ounces of gold from Yanfolila and generated revenues of $91 million. However, the company reported an operating loss of $12 million and net loss after tax of $16 million for the period. This reflects the fact that Yanfolila is still in the early stages of production.
Over the past three years, Hummingbird has grown revenues from $37 million in 2019 to $182 million in 2021. However, it has remained unprofitable with net losses between $10-20 million.
The ramp up of gold production at Yanfolila is key to Hummingbird achieving profitability in the coming years. The company has guided to produce between 105,000-125,000 ounces in 2022 and 130,000-150,000 ounces in 2023. If achieved, this increased production would likely push Hummingbird into positive earnings territory.
Investment Thesis for Hummingbird
There are several factors that could make Hummingbird Resources a compelling investment opportunity:
Exposure to gold price upside
With gold still trading around $1,700/oz, Hummingbird offers leveraged exposure to potential gold price upside. If gold enters a new bull market, Hummingbird could see substantial growth in profitability and cash flows. The company estimates that a $100/oz increase in the gold price would result in ~$50 million of additional annual revenues at Yanfolila.
Low-cost production
Hummingbird highlights Yanfolila as one of the lowest cost gold mines in Africa, with projected all-in sustaining costs (AISC) of $880-980/oz. These low costs provide flexibility and downside protection compared to peers. Even if the gold price declines, Yanfolila may remain profitable.
| 2022E AISC | $900-1,000/oz |
| 2023E AISC | $880-980/oz |
Exploration upside at Yanfolila
Yanfolila currently has reserves to support a 7 year mine life. However, Hummingbird sees strong potential to expand reserves and extend the mine life through continued exploration. Over 200,000 meters of drilling is planned at Yanfolila over the next 3 years. Recent drilling has intersected high grades over wide intervals, highlighting the exploration upside.
Development of Dugbe gold project
In the longer term, Hummingbird’s 4.2 million ounce Dugbe gold project provides additional upside for investors. Dugbe has the potential to become a large-scale, long-life gold mine. While early stage, positive development progress at Dugbe would be a catalyst for Hummingbird’s share price.
Risks and Challenges
Despite the potential upside, there are also risks facing Hummingbird Resources as an investment opportunity:
Execution risk at Yanfolila
As a relatively new mine, there is ongoing ramp-up, execution and cost control risk at Yanfolila. Any delays, interruptions or cost overruns could negatively impact Hummingbird’s profitability and share price.
Volatile gold price environment
A sustained decline in the gold price below $1,500/oz could strain profitability at Yanfolila given its cost structure. Hummingbird’s earnings remain highly sensitive to gold price movements.
Geopolitical risk in Mali
Hummingbird’s reliance on Mali exposes it to risks from political instability, as seen by coups in 2020 and 2021. Any emerging geopolitical issues could cause operational disruption.
Funding needs for development projects
Bringing Dugbe into production will require substantial capital investment in the range of $200-300 million. Hummingbird may need to raise debt or equity financing which could dilute shareholders.
Financial Metrics and Valuation
Key financial metrics for Hummingbird include:
Market Capitalization: £250 million
Enterprise Value: £220 million
2022E Production: 110,000 oz gold
2023E Production: 130,000-150,000 oz gold
2022E All-in Sustaining Costs: $900-$1,000/oz
2023E All-in Sustaining Costs: $880-980/oz
Based on these metrics, Hummingbird is currently trading at a 2023E EV/EBITDA ratio of approximately 4.0x and a P/E ratio of 12x. This implies that the company’s shares are reasonably valued relative to its profitability and production growth outlook. However, the multiples could expand if Hummingbird delivers on ramping up Yanfolila and advancing Dugbe.
Upside case scenarios could see Hummingbird trading at 6-8x EV/EBITDA or 15-20x P/E over the medium term.
Conclusion
In summary, Hummingbird Resources has an attractive risk-reward profile as a mid-tier Africa-focused gold miner. The company offers investors:
– Exposure to forecast production growth at the low-cost Yanfolila gold mine
– Leverage to potential upside in the gold price
– Exploration upside to extend Yanfolila’s mine life
– Longer-term development potential at the Dugbe gold project
However, risks remain around:
– Execution and cost control at Yanfolila
– Volatility in the gold price environment
– Geopolitical stability in Mali
– Funding needs for Dugbe development
At current valuations, Hummingbird appears reasonably priced relative to its growth outlook. But successful execution could drive expanded valuation multiples. For investors bullish on the gold price and Hummingbird’s execution, the risk-reward skew appears favorable. But risks factors highlighted should be monitored.
