Continental Gold Limited New CGOOF

From TDW this AM

[MrBigger]

Daniel Earle Arun Lamba, CFA, (Associate)


Continental Gold Inc. (CNL-T) C$3.49 Buying Opportunity Post-Index Sell-off

Event We are publishing this brief note to highlight what we view as an opportunity to buy shares of CNL during a period of significant underperformance brought about by a weighting reduction in the GDXJ Index, which takes effect at the end of this week. Impact: NEUTRAL Continental has underperformed the GDXJ since the company's 52-week high in February, with CNL down ~39% since then and the GDXJ down only ~19%. We believe that the underperformance is due to pre-selling in advance of the decrease in weight in the GDXJ taking effect at the end of this week. As a reminder, last month, Continental Gold announced that Newmont Mining Corp. and RK Mine Finance had agreed to make a strategic investment of $134mm in the company at C$4.00/share, a 46% premium to the close of C$2.74/ share (on May 10). Together with the $250mm debt facility announced in January, the company now has a total of $407mm to put towards project capex that was estimated at $389mm in the February 2016 Feasibility Study (FS). We expect additional funding to come from equipment vendor financing (Exhibit 2). With funding substantially de-risked, we would expect the stock to begin rerating from its current developer discount to an eventual producer multiple as it progresses through construction toward production expected in 2020. We provide a more detailed timeline in Exhibit 3. As a reminder, the FS defined Proven & Probable Reserves of 3.7 Moz grading 8.4 g/t, within total resources of 9.0 Moz at 9.8 g/t. Continental is currently trading at 0.57x our corporate NAV5%. This is below its closest peer, Lundin Gold, which is trading at 0.77x NAV5% and was not affected by the GDXJ re-balancing. An example of a small-cap producer that could be a comparable when CNL reaches production would be Guyana Goldfields, in our view. Guyana currently trading at 1.11x NAV5%. TD Investment Conclusion With the company's permit and funding in place, we believe that Buritica stands as one of the largest and highest grade, independently owned, construction-ready gold projects in the world. We expect the stock to re-rate progressively higher as the company continues to advance the project

CNL-T: Price Company Profile Continental Gold Inc. is a Toronto-based gold exploration company with one of the largest portfolios of mineral rights in the rapidly emerging Colombian gold sector. The company is focused on its flagship Buritica (100%) gold project in Colombia.