Belo Sun Mining Corp T.BSX

Canaccord: Buy rating and $1.00 target for Belo Sun Mining

[hockeyguy123]

According to Canaccord Genuity:

https://app.box.com/s/uc9c7pmx0e1gkajvectd

March 2, 2014

MANAGEABLE STAGED APPROACH, IMPROVED ECONOMICS AND HIGHER GOLD PRICES IMPROVE VALUATION

Investment recommendation

We maintain our SPECULATIVE BUY rating on Belo Sun. In our view, the lower capital and improved economics under the staged development approach (as highlighted by the recent PEA) have not only increased the likelihood of the project being built, but also the company’s attractiveness as an M&A target. This (in addition to improved gold prices) has prompted us to change our valuation approach to a DCF-based methodology vs. optionality/in-situ based previously explaining the increase in our target price.

Investment highlights

- The company recently released a PEA for the Volta Grande project which highlighted a staged development approach involving the development of a 3 Mtpa operation for upfront capital of $329 million (less than half of that estimated in the May 2013 PFS) and an eventual expansion to 6 Mtpa after year 6.

- The PEA demonstrates better economics than the May 2013 PFS. At near spot prices of $1,300/oz, the PEA generates an NPV (5%) of $418 million and a 16.1% after-tax IRR compared to the 2013 PFS which highlighted a 5%/NPV of $240 million and 10% IRR. Under our forward curve based price deck (LT/2019E: $1,455/oz), we estimate a 5%/NPV of $618 million and IRR (after-tax of 23.8%).

- With a lower initial capex estimate that would likely be easier to finance, we believe the revised PEA also increases Belo Sun’s optionality as a takeover target (the staged PEA should render the project attractive to a larger set of potential suitors).

Valuation

Our 12-month target price has increased to C$1.00 (from C$0.75) based on 0.35x our undiluted 5% C$2.79/share NAVPS (DCF based) estimate, or implying 0.65x our diluted 5% operating NAVPS (assuming 50% of initial capex equity financed at C$0.50/share). Our previous target price was based on an EV/oz multiple of $25/oz (total resources).