Genuity's Michael Gray Upgrades ITHTARGET: $5.00 (FROM $4.60)
RECOMMENDATION: BUY
RISK RATING: SPECULATIVE
* Site visit highlights progress at Livengood – We conducted a site visit to ITH's 100%-owned Livengood 6.8moz indicated and inferred gold deposit (0.5g/t cut-off). Livengood is located 100km by paved road north of Fairbanks, AK, U.S.
* Anatomy of the Livengood gold system becoming more clear – We are impressed with the size of the Livengood gold system and we have a better appreciation for the multiple gold mineralizing stages and interpreted structural controls that have led to the development of a likely giant 15moz+ gold deposit.
* Initial "milling scenario" most likely, in our view – We believe that given the overall low gold grades, and the northern climate, that maximum gold recovery and scale will be key for project economics. On this basis, a milling scenario has been used in our financial model, with higher grades in the first year through a starter pit, and a heap leach option contemplated toward the end of a potential mine life, which we have not incorporated at this time.
* Numerous expansion catalysts - ITH is just finishing its 2009 winter drilling and will have additional results from the higher grade, albeit deeper, gold mineralization just southwest of the existing indicated and inferred resource. Potential to expand the deposit to the northeast is very high. Also, given the high grades encountered in the core area of the deposit to depth, we are also intrigued by the potential to document a higher grade feeder zone with a west-directed fence of moderate to deep holes.
* Valuation now incorporates a DCF model - Our DCF model derives operating 0.7xNAV of $248.8 million for Livengood as an undeveloped deposit (open pit, mill capacity of 60ktpd, 2017 start-up, capex $1.39 billion, forward curve and long-term gold price/fx rate). We value other gold resources at $9.7 million (US$20/oz) and adjusted cash at $22.7 million for a 12-month NAV of $304.0 million. On this basis, we have revised our target price to $5.00 (from $4.60), and we continue to recommend ITH as a BUY.