Blackthorn Resources: Investec Securities places BUY, A$1.10 price target

Investec Securities has written a new research report on Blackthorn Resources (ASX: BTR) rating the stock as "speculative risk" at a price target of A$1.10 per share, more than double the current price.

Recommendation: Buy
Last Price: A$0.50
Target Price: A$1.10
Forecast Total Return: 120%

Catalysts:

Upcoming catalysts may include confirmation of high silver grades and economic attractiveness of the expanded Perkoa mine, and drilling success at the Mumbwa copper project in Zambia.

BHP exit paves way for value-add

BHP Billiton (ASX: BHP) recently announced its intention to withdraw from the Mumbwa copper project where a sizeable resource of over 1.6mt Cu has been established to date.

BTR will commence drilling in the coming weeks on the 100% owned property, with no shortage of interest from other global copper players. The Perkoa Zinc mine is moving closer to production, with results due shortly on reserve extension drilling with silver grades providing potential upside to cashflow. This stock is rated speculative risk; thus it is suitable only for investors with significant risk tolerance.

Recent newsflow:

BHP recently declared it will not continue funding drilling at Mumbwa, and move to the next phase of the project which required a cash payment to BTR and other commitments. BTR’s partner in Perkoa, Glencore International (LON: GLEN), is due to report on the progress of potential plant expansion to 1mtpa, and the addition of a
silver/lead circuit in coming weeks.

BTR recently hired Tony De Santis as COO (ex- Anglo American, BHP) and has acquired new exploration licences in Zambia.

Key issues:

The copper project has the potential for further discovery, and to
expand the known resource base (87mt @ 0.94% Cu).

Whilst valuation of the resource is difficult due to the uncertain economics of a mining project (no scoping or PFS yet conducted) it is clear the market is not factoring in any value-add here, which clearly there is potential for. With production from mid-2012E, the Perkoa project has potential to generate US$100mpa EBITDA (BTR, 40%); hence at the current share price, investors get exposure to the copper project for free.

Value:

We value BTR’s 40% of Perkoa at US$73m, allowing for the expanded case (1mtpa, silver/lead circuit) including a 30% NPV risk discount. Due to reduced equity market valuations, and uncertainty on Mumbwa post the BHP exit, we have reduced our valuation multiple on the resource to US$0.02/lb (was US$0.03/lb) which is less than 50% of peers.

In summary, our valuation has risen from US$1.04/share to US$1.14/share (US$1.45/share spot) primarily due to a move to 100% ownership of Mumbwa.

Our price target of A$1.10ps (down from A$1.20) approximates our current A$ valuation (A$1.06/share).

Originally published at: http://www.proactiveinvestors.com.au/companies/news/18532/blackthorn-resources-investec-securities-places-buy-a110-price-target-18532.html