Treasury Metals gets "buy" from Dundee, Goliath project cited as "treasure chest"

Treasury Metals (TSE:TML) received this morning a buy recommendation from Dundee Capital Markets, which cites the junior explorer's Goliath gold project as a "multi-million ounce, easy-to-access treasure chest."
The miner's flagship Goliath project consists of a total mineral inventory of 1.6 million ounces grading 2.0 grams per tonne (g/t) gold, located in mining-friendly Ontario.
The property has an existing preliminary economic assessment (PEA), which shows "strong economics", Dundee analysts noted.
The project is ideally located 20 kilometres east of Dryden, Ontario, just 2 km off the Trans Canada highway, with readily available power, transportation and workforce, providing low operating costs.
Dundee has added the company to its mineral exploration watch list, with a buy recommendation. The capital markets firm did not prive a target price for Treasury, however.
Reasons for the recommendation included a 1.6 million ounce growing resource, "robust economics in the 2010 PEA", and a "compelling valuation".
Treasury’s 100 per cent-owned Goliath project boasts a mineral inventory consisting of 760,000 ounces of indicated resources, or 9.1 million tonnes grading 2.6 grams per tonne (g/t) gold, plus 870,000 ounces of inferred resources, or 15.9 million tonnes grading 1.7 g/t gold.
An updated resource reported last November included more than 60,000 metres of diamond drilling completed throughout 2010 and 2011.
The largely infill-focused programs resulted in a 181 per cent increase in indicated gold resources, albeit some of the increase came from a reduction in cut-off grades, Dundee noted.
Treasury’s 2012 exploration program will see 20,000 metres of drilling to test high-priority targets to the northeast of the current resource area, in addition to further infill drilling.
Assays from the current program are pending.
The Toronto-based company's 2010 PEA report is based on its previously defined resource of 1.2 million ounces, and therefore does not include the "significant 2011 resource update", which brought its total mineral inventory to 1.6 million ounces of gold.
Despite this, Dundee said the 2010 preliminary report does provide "strong economics", yielding a net present value of $23.0 million at a 5 per cent discount rate and assuming a 1,500 tonne per day operating scenario, and a conservative US$850 per ounce gold price.
Using a higher $1,200 per ounce gold price, the net present value jumps to $91.0 million.
The PEA pegged initial capital costs at $62.7 million, "with low $510/oz operating costs," Dundee said.
The project is expected to operate under a combination of surface and underground mining methods, with initial production anticipated in the fourth quarter of 2014.
An updated PEA report is expected toward the end of this month, which will incorporate updated resources and could support an increased production rate.
Lastly, the capital markets firm took note of the company's valuation, trading at $21.97 per ounce.
Based on a current enterprise value of roughly $37.66 million, Treasury's updated 2011 total mineral inventory is valued at around $22 per ounce of gold equivalent.
"[This] can be considered undervalued when compared to a peer group with early stage projects trading at approximately $31/oz Au Eq. and Dundee’s gold developers/explorers universe which averages $US84/oz Au Eq," the research report stated.
"Finally, Treasury hosts a higher grade resource of 2.0 g/t Au versus its peers’ 1.3 g/t (weighted avg.). With the revised PEA (end of June 2012) and pending drill results from the 2012 exploration program as catalysts for the stock, we recommend Treasury Metals Inc. with a BUY rating," Dundee concluded.