RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Just an observationFrom Cormark May 2/16:
Recommendation: Buy (S)
Target Price: C$0.70
Investment Thesis:
Avnel holds one of the highest grade (2.80 g/t) open-pit projects in the sector.
The asset is a likely takeout target in our view, given the elevated returns at even $1,000/oz (24% post-tax IRR at $1,000/oz) and the strong regional growth prospects.
Highlights:
Top-Tier Quality And Now Shovel-Ready Assets
With the timely approval of the Kalana ESIA, the asset is essentially ready for a construction decision in 2016. Recall that the recent definitive feasibility study (DFS) outlined a post-tax IRR of 38% and NPV5% of $257 MM with payback in just 1.2 years. In our view, Kalana is one of the more robust and fundable construction-ready assets in the space.
Funding Hurdles Are Low Given the existing permit, robust payback and production history, we believe debt will be available at attractive terms. Additionally, the company has a history of financial support from its 42% shareholder (Elliot Group) who recently backed a new mine finance venture.
Retain Buy (S) Rating, Increase Target To C$0.70 (C$0.60 previously)
We update our target to reflect spot gold ($1,280/oz) and we reiterate the valuation disconnect with Avnel trading at 0.41x its fully funded and diluted spot NAV versus peers at 0.6-0.8x.
DFS Recap: Recall that Avnel released a DFS for the Kalana Main open-pit (O/P) project in Mali.
Highlights of the study include the attractive rapid payback (1.2 years at $1,200/oz Au) and robust IRR (38% post-tax at $1,200/oz). In our view, Kalana is an asset that can compete for the scarce capital in the sector and remains economic at lower gold prices (Cormark estimates a 24% post-tax IRR at $1,000/oz).
We have conviction that the asset can be funded given the capital efficiency, detailed level of engineering, existing permit and the lengthy production history.