A Look At The Sustainability Of Xtract Resources (XTR)

A Look At The Sustainability Of Xtract Resources (XTR)

Xtract Resources (XTR)

Xtract Resources (XTR) is a London, United Kingdom-based resource, development and mining company. The company focuses on the Manica mine in Mozambique and aims at acquiring brownfield resource projects in regions where the mining regulations are transparent, and mining and infrastructure are prevalent. To identify resource projects, the company has a criterion, which includes economic projections suggesting a hurdle rate of return above 25%, suitable mining jurisdiction and projects which are reasonably advanced. The company has differentiated its operations in three operating segments:  Mine Development, Investment & Other and Alluvial Gold Mining Production. Colin Bird is the Executive Chairman of the group.

Company & Manica Alluvial Gold Update

The company recently announced an update for the three months ended 31 March 2019. The results were a little flat because of the rainy season and high stripping ratio against low-grade gravel, as total alluvial mining contractor gold production was 40.20Kg (equivalent to approximately 1,293 ounces). Explorator contributed 11.26Kg (equivalent to approximately 323 ounces) towards total production, while attributable revenue to Explorator from gold sales amounted to US$408,197.

Key Financial Highlights (H1 FY 2018, in £m)

The company reported that the alluvial mining operations remained cash positive and progress continued to be made, as the group reported revenue from gold sales of £0.46m and increased from £0.166m reported in the preceding half-year. Though, the operating expenses climbed to £0.83m (H1 FY17: £0.42m), the company was successful in reducing operating loss to £0.43m from £0.46m reported in H1 FY2017. The group reported a net loss of £0.41m (H1 FY17: £0.64m), resulting in net loss per share of 0.12p. The group reported net assets worth £11.08m (FY 17: £11.48m). It does not have any liability other than trade and other payables. The company increased its cash position from £0.54m to £1.01m.

Share Price Commentary

Daily Chart as at May-16-19, before the market closed (Source: Thomson Reuters)

On 16th May 2019, at the time of writing (before the market close, GMT 9:28 am), XTR shares were trading at GBX 0.6625, down by around 5 per cent against its previous day closing price. Stock’s 52 weeks High and Low is GBX 1.94/GBX 0.5575. Total outstanding market capitalisation was £2.50 million.

 

Conclusion

Commodity prices, which highly impact the company’s financials and viability, are subject to high levels of volatility in price and demand. The price of commodities depends on a wide range of factors, most of which are outside the control of the group, including changes in market sentiment towards the resource industry which is affected by movements in global equity and share markets. Moreover, the cost of production is dependent on a wide range of factors. Also, there is a risk that Alluvial gold could present processing constraints with recoverability and might be insufficient in quantity as it is random in nature and its distribution varies in degrees of fineness. However, the company is in a good position to add further potential for shareholder value growth as it is debt free and is active in seeking out other opportunities which may diversify the commodity risk. The outlook for the sector is strong and the work to consolidate the Manica area is accelerating, putting the company on a decent ground for future opportunities.

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