Continental Gold Limited New CGOOF

TD Securities Note:BTW, 6.5$ target is in-line with 1B value

[LanceFTN]

TD rates $CNL with a speculative buy, the risk is speculative, with a price target of $6.50. Event: During market hours Wednesday, Continental announced the receipt of the final permit for its Buritica Gold Project (100%) in Colombia. Impact: POSITIVE This news marks a major milestone in the evolution of the company, with Buritica now standing as one of the largest and highest grade, independently owned, construction-ready gold projects in the world. The permit arrived sooner than our forecast of Q1/17.

As a reminder, the company completed a Feasibility Study (FS) for the project in February 2016, which outlined Proven & Probable Reserves of 3.7 Moz grading 8.4 g/t. Total Resources (inclusive) were estimated at 9.0 Moz at 9.8 g/t. These estimates were, in our view, well supported by extensive drilling (736 holes) and underground sampling (7.2 km).

Moreover, the company completed a trial stoping program in May that demonstrated the potential for wider widths and higher grades to be realized than those predicted in its Reserve estimate. We commented at that time that this finding was consistent with the previous underground sampling and our own observations from the core of the vein systems, but was not necessarily representative of outlying veins.

The FS contemplated a 3 ktpd underground mine/milling operation, with production of 253 koz/year (282 koz/year over the first five years) at cash costs of $411/oz (AISC of $492/oz). Initial capital costs were estimated at $389mm. At $1,200/oz Au, the NAV5% of the project was estimated at $860mm and the After-Tax IRR at 31.2%, which we regard as robust.

TD estimates that the company has cash and equivalents of $29mm and expect that the next step will be debt-financing. In the current market, we expect the company to be successful at financing the majority of its forecast capital expenditures with debt at terms comparable with recent transactions, e.g., TMAC Resources (TMR-T).

TD Investment Conclusion

With this news, TD believes 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 with its final permits in hand as its continues to advance the project, with the next key catalyst being the completion of debt-financing, which we anticipate in Q1/17.