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Wednesday, 10 April 2013
Broker sees beauty in Treasury Metals' small and stable Goliath gold project
Casimir Capital's Ryan Walker has started initial coverage onTreasury Metals (TSE:TML), saying he believes the miner will drive up high grade gold in Ontario.
"Amid a wave of capex blowouts, the scaling back of numerous projects, increasingly activist local protests in some jurisdictions, plans for increased government royalties and windfall taxes, and even outright nationalizations, we highlightTreasury Metals Inc," the analyst writes in a section titled "Small mining can be beautiful" in a morning research note on Wednesday.
Treasury is advancing its 1.7 million gold equivalent-ounce Goliath gold project near Dryden in northwestern Ontario.
Walker started the company off with a speculative buy recommendation, and a target price of C$1.25 per share - way up from its current trading price of 48 cents, suggesting plenty of upside potential.
The analyst cites "ample local infrastructure" as providing a head start for the project, which sits just 20 km east of Dryden, making it immediately accessible via paved roads 2 km north of the Trans-Canada Highway.
A TransCanada natural gas pipeline and electrical power lines also cross the property, while a CP Railway line parallels the highway. On-site infrastructure includes numerous offices and warehouses associated with a former Ministry of Natural Resources tree nursery, helping to de-risk the project.
The property, Walker notes, also offers a "relatively modest initial capex" – an important consideration given current market conditions. In addition, the project’s situation in a politically stable, established Canadian mining region "provides insulation from increasingly activist local protests in certain jurisdictions, plans for egregious increases in government royalties and windfall taxes, and even outright nationalizations", the analyst highlights.
Indeed, Ontario ranked 16 out of 96 jurisdictions in the Fraser Institutes’ recent 2012/2013 Survey of Mining Companies. The survey uses a Policy Potential Index - a composite of survey responses to 15 policy factors - to measure the investment attractiveness of a jurisdiction.
The project also boasts near-term production potential, with Treasury forecasting production start-up in late 2015, with average annual life-of-mine output of around 80,000 gold equivalent ounces at cash costs of $698 an ounce.
Owing to a staged development approach, initial capex is estimated at just $92.5 million, with another $108 million in sustaining costs, including underground development in year two, which is expected to be funded through internal cash flows.
Walker says the company is also bolstered by "substantial exploration potential." Aside from Goliath's Thunder Lake deposit, which remains open along strike and at depth, the project also hosts some 11 km of prospective ground mostly along strike to the northeast.
Recent drilling has also found a new high-grade shoot in the C Zone paralleling the Main Zone at Goliath 30 to 50 metres to the north. "Success there has the potential to lower the strip ratio and extend the open-pit mine life," the analyst adds.
Upcoming catalysts for the company include assay results from around 20 drill holes, which are pending, as well as an updated resource estimate in the next months, and the submission of an environmental impact statement in the latter half of the year. A feasibility study is also expected in the second half of 2013, with development financing anticipated to be secured in the first half of next year.
In November 2011, an updated resource estimate at Goliath included indicated resources of 9.14 million tonnes grading 2.6 g/t gold and 10.4 g/t silver, with another 15.9 million tonnes at 1.7 g/t gold and 3.9 g/t silver classified as inferred resources.
Walker says his price target is based on a discounted cash flow model of the proposed development of Goliath, and does not include any value for Treasury's earlier-stage Goldcliff project, which is located around 40 kilometres south-southeast of Dryden. In November, the company said it made a new high grade gold discovery at Goldcliff, with the third hole of an initial nine hole program at the site returning gold grades of 332 g/t over 4 metres.