short history of some Castle Mountain analyst comments 10 analyst reports in total over last 3 years, here are some summaries and short notes I assembled for this posting. Dec 2015 Paradigm Capital Analyst report Excerpt from report dated Dec. 12, 2015 "Conclusion NewCastle was a favourite development story in our original Takeover 20 of August 2014. It seemed obvious: a 3Moz resource, former mine that still had its most important California permits, it was a heap-leach project with low capital cost and an attractive IRR. Despite many CAs being signed, it never received the traction we expected. Why? There seemed to be three key reasons: 1) a stronger geological model was needed to back the resource; 2) it lacked sufficient water pumping permits; and 3) some worried if the mine could be repermitted, being in California. Were happy to see the more comprehensive geological model and delighted that the larger resource and lower strip help the economics, which have been hurt by the falling gold price. Indeed, when we run NCA through our Takeover 20 ranking model, it ranks among the top four gold projects (other top scorers are Integra [ICG-V, $1.00 TP, Speculative Buy], Lundin Gold [LUG-T, $7.00 TP, Speculative Buy] and Sabina [SBB-T, $1.50 TP, Speculative Buy]). We are updating our target to C$0.80 (from C$1.45), based on a blend of our unfinanced and financed NAV at $1,200/oz gold. We reiterate our Speculative Buy rating."
July 2015 GMP initiates coverage "Initiating coverage with a BUY rating and C$0.90/sh price target Our target price represents a 0.8x P/NAV8% multiple when using our GMP USD:CAD exchange rate of C$1.00:$0.825. NCA trades at a surprisingly low valuation compared to its unfinanced heap leach developer peer group. On an EV/Annual ounce basis, NCA sits at $146/oz vs $262/oz. Using M&I ounces in the ground, NCA is valued at $7/oz vs. $31/oz. On a P/NAV8% basis, NCAs 0.35x is shy of the 0.42x group average. As management continues to de-risk and optimize the asset, we expect these valuation gaps to close quickly."
Sept 2014 | CMM Valuation from Industrial Alliance/MGI |
Over the last six months, CMM has displayed a strong correlation to the gold price (see chart below).
CMM has a cash position of $8M and a
PERMITTED, past-producing oxide resource of 4.1Moz
Currently trades at only $8/oz - a discount of 80% to the peer average of $40/oz, and 92% discount to recent acquisition values of $100/oz
CA's signed with 18 mid-tier and senior gold producers
Currently covered by 9 analysts (Cormark, Edgecrest, Canaccord, Macquarie, Haywood, BMO, PI, Paradigm, and MPartners) with an a
verage target price of $1.50/share (potential return of 233% to current share price of $0.45)
All of the analysts that cover CMM consider it be an acquisition target
With a strong cash balance of $8M, we believe CMM has enough runway to advance the project until the gold price improves, but also believe it is more likely that it will be opportunistically acquired (especially considering the current scarcity of permitted oxide deposits)
Sept 2014 Globe says Macpherson targets Castle Mountain at $1.60 Castle Mountain Mining Company Ltd (C:CMM)
Shares Issued 71,891,418
Last Close 9/4/2014 $0.65
Friday September 05 2014 - In the News
The Globe and Mail reports in its Friday, Sept. 5, edition that M Partners analyst Derek Macpherson rates Castle Mountain Mining (65 cents) "buy," with a target of $1.60, implying a rate of return of 158 per cent. The Globe's Darcy Keith, Jody White and Tim Shufelt write in the Eye On Equities column that Mr. Macpherson says: "In our view, Castle Mountain has reduced risk relative to most other development companies in North America as it is a past producer and has mining permits. Consequently we believe the company's shares are likely to re-rate as the key development milestones on the horizon provide clarity on the path to production." Castle Mountain is a gold exploration company with the right to acquire a 100-per-cent interest in the past producing Castle Mountain mine, a potential open pit heap-leach project in San Bernardino county, Calif. Under previous ownership the Castle Mountain mine produced in excess of one million ounces of gold over a span of 10 years from 1992 to 2001, when operations ceased due to a low gold price environment. The company is working toward the restart of the Castle Mountain project and has completed a preliminary economic assessment outlining three development scenarios.
M Partners Initiate Coverage with $1.60 Target M Partners this morning initiated coverage on
Castle Mountain Mining Co. with a "buy" rating and one-year price target of $1.60 (Canadian), implying a rate of return of 158 per cent.
"In our view, Castle Mountain has reduced risk relative to most other development companies in North America as it is a past producer and has mining permits; consequently we believe the company’s shares are likely to re-rate as the key development milestones on the horizon provide clarity on the path to production," commented M Partners analyst Derek Macpherson.
PARADIGM Aug 7, 2014 Event We are reviving our “Takeover 20” analysis. After three years of worshipping at the altar
of cash-flowing companies, we believe the time is right for gold sector investors to
consider development-stage projects. In this note, we present the strategic rational, which
boils down to scarcity, the value proposition, and then proceed with initiating coverage of
seven of the 25 companies. In this update of the
Takeover 20, we have gone further than
previous reports, providing more comprehensive analysis, not to mention expanding our
universe to more than 20 — almost all new names to the Takeover 20. Our goal is to offer
insight into the best-of-breed development projects, helping readers tailor their selections
to their investment preferences, be it high IRR projects or low entry cost per ounce. We
are launching coverage of: Carlisle Goldfields; Castle Mountain Mining; Freegold Ventures;
Integra Gold; Midas Gold; Orbis Gold; and Seabridge Gold.
Description Castle Mountain Mining has the right to acquire 100% of a former gold heap leach mine in
California that went by the same name and produced 1.2Moz from 1991 to 2004. Mining
ceased in 2001, a year in which gold averaged US$271/oz.
Permitted: Fortunately, the Castle Mountain property still has its key operating
permit and the San Bernardino County has extended it to 2025.
Recent Resource Estimate: Roscoe Postle Associates (RPA) used historical and CMM’s
drilling to provide an estimate of resources remaining on the property, published on
Dec. 6, 2013 with 3.15Moz of indicated resources grading 0.6 gpT, and 1.05Moz of
inferred resources grading 0.6 gpT at a 0.14 gpT cut-off.
Recent PEA: Three development cases were presented in an April 2014 PEA by RPA:
o
Static Case: using only the permitted footprint (1.1Moz at 0.84 gpT)
o
Base Case: within the original EIS footprint, but requiring an expansion of the
footprint of disturbance (3.6Moz at 0.85 gpT),
o
Unconstrained Case: although still within the EIS boundary the permit is
assumed to be revised to enable expansion to 18.1MTpy (currently
permitted 8.2MTpy) and expanding the footprint of disturbance to allow
mining of the full resource (4.2Moz at 0.62 gpT.)
Feasibility Study Soon Under Way: It was clear from the PEA that CMM should move
quickly to advance the project, moving to a full feasibility study skipping the PFS
stage. A realistic target of Q1/15 has been established with M3, the engineering
company selected to complete the feasibility.
Our Resource Estimate is a hybrid, using the Static Case 6.4MTpy production design,
but the base-case resource, giving a robust 24% after-tax IRR at $1,300/oz. If we had
just used the Static Case resource, our NAV/share would only have been one-third
smaller. The base-case resource provides considerable upside leverage to higher gold
prices, however. At $1,400/oz, our NAV is 77% more than if we just used the Static
Case’s resource.
Flexible Mine Plan: At lower gold prices, CMM could simply resort to the Static Case
resource, which we believe could easily be extended a few years, keeping it pretty
robust (e.g., after-tax IRR of 15% at $1,150/oz.)
Our Estimates: As with most projects in our
Takeover 20 analysis, we have assumed
higher G&A (34%) than the PEA. We estimate: a 3.6Moz mineable resource at 0.85
gpT; production start-up in mid-2016; life-of-mine annual production of 122Koz/year
gold; total cash costs (inclusive of expected royalties) of $988/oz life of mine; AISC of
$1,086/oz; mine life is 21 years with expansion potential; and after-tax IRR at
$1,300/oz of 24%. More details can be
For now our target price for CMM is based on a 0.55x NAV multiple applied to our
unfinanced NAV of C$4.72/sh at our target gold price of US$1,425/oz. This equates to a
target price of C$2.60/sh. We like CMM’s upside and dual appeal as a takeover candidate
or owner-build and are assigning a Speculative Buy rating.
Castle Mountain Mining
(CMM-TSXV)
| Stock Rating: | Outperform(S) | | Stock Price: | $0.70 | | Target Price: | $1.30 | | | | | | | | June 10, 2014
Materials - Precious Metals & Minerals
|
April 2014 From Cormark: Talking Points For Sales/Trading - Not Intended As A Research Report Castle Mountain Mining CMM V
Buy (S) - C$1.50 Target
Event: PEA Outlines Staged Operation, Confirms Valuation Discount.
Impact: Positive
Commentary: *Castle Mountain has announced a PEA-study for its past producing, permitted heap leach project in California.
*The base case study has outlined a
scaled operation to reduce up-front capital (to $98 MM) and permitting risks that is expanded in year 3. *The release outlined 3 production cases at $1,300/oz:
1) Static Case (119 Koz/yr): Assumes no expansion and matches our model most closely. This case focuses on the high margin ounces only and remains entirely within the permitted boundary but has a reduced mine life of 7 yrs due to permitting restrictions - 29.7% IRR
2) Base Case (176 Koz): Starts as case 1, but expands in year 3. Requires an amendment of the existing permit - 20.1% IRR
3) Unconstrained Case (291 Koz/yr): Assumes permit is amended prior to production but produces a mammoth 291 Koz/yr - 21.7% IRR
The Numbers: Staged Operation Reduces Capital In Early Years: The base case assumes just
$98 MM in capex for start up of a 6.4 Mtpa operation that scales up to 8.1 Mtpa in yr 3 to produce ~176 Koz/yr for 17 years and remains within the permitted production constraints but requires an amendment in ~yr 3.
Flexibility To Grow Production: The envisioned expansion (base case) offers the ability to grow production to an impressive 176 Koz ($173 MM expansion capex) or up to 291 Koz should the permit conditions be fully amended. Alternatively, in a capital constrained, low gold price environment, the operation could chug along with no additional capital to produce a reasonable 119 Koz/yr.
Works At Lower Gold Prices: All in sustaining costs at the base case are $949/oz and reduced to $919/oz should the expansion be delayed. Post-tax IRR at our lower gold price forecast ($1,200/oz) is 14.5% at the base case and 20.5% at the "static case".
NPV Reflects Larger Production Rates But Lowers IRR: The post-tax NPV5% at $1,300/oz is $352 MM (vs. our forecast of $324 MM). We had forecast a lower mining rate focusing on the higher margin ounces and that option remains viable. The boost in NPV is however accompanied by a lower IRR, however we note that the IRR of the expansion at the time of the decision (year 3) would be much higher and initial pre-prod capex would have been repaid at that stage.
Continues To Trade At A Discount To Peers: Castle trades at $12/oz vs peers (TGM/GQM/SUE) at $50-$67/oz The project trades at a large discount to peers, despite it having a decade of production history to back up the study and is ahead of the game in permitting. While the project offers excellent production growth, the capital cost is still multiples of Castle's market cap and we therefore suggest it makes good sense for an acquirer to pounce on the discounted ounces and leverage a better access to capital. Potential acquirers include Alamos (Not Rated), New Gold (Buy, $7.50 Target), Centerra (Not Rated) & Oceana Gold (Mkt Pfm, $2.30 Target). Tyron Breytenbach, P.Geo
Equity Research - Mining
Cormark Securities Inc.
200 Bay Street, Suite 2800
Royal Bank Plaza, South Tower
Toronto, ON M5J 2J2
Tel.#: (416) 943-6747
Fax#: (416) 943-6498
March 2014 BMO Research is initiating coverage of Castle Mountain Mining with an Outperform (Speculative) rating and a C$1.30 target price.
1. CMM is an emerging developer focused on restarting the past producing Castle Mountain mine in California. An investment case for CMM is based on a lower overall risk profile and attractive valuation metrics relative to gold developer peers.
2. The large resource base (3.4Moz at a 0.34g/t cut-off) and above average heap leach grade profile support superior project economics.
3. The scale, processing method and low initial capex requirements of the Castle Mountain project translate into a project within the financing wheelhouse of a junior mining company.
| Castle Mountain Mining - CMM CN |
| Canada | Outperform |
| California Heap Leachin’ |
Initiating coverage of CMM, Outperform, $2.00 target
· Buy CMM for its clear path to production, fully (pre-operating) permitted status, history as a past-producing heap leach mine, low all-in sustaining costs (AISC) and low initial capex. We recommend investors buy Castle Mountain ahead of the Phase 2 drill program and advancing feasibility study work in 2014.
· Impressive maiden resource for Castle Mountain version 2.0. Based on historical drilling and the company's Phase 1 drill program in 2013, CMM released a maiden resource on 21 November that was larger with higher grade than our expectations. At a cut-off of 0.34g/t Au, the project has 2.6m oz of contained gold in the indicated category at a grade of 0.94g/t. Our base case assumes CMM will mine 54mt at 0.94g/t, recovering 75% for total gold production of 1.2moz (122kozpa over 10 years). We estimate LOM ASIC of $700/oz.
Low-risk development for a past producer with key permits in place and low construction capex
· The project is essentially fully permitted through to production given the past-producing status of the mine. With no pit backfill requirement (as is the case with new mines in California), and a supportive county, we do not anticipate any issues in obtaining the remaining required operating permits over the next two years.
· Construction in 2015, production in 2016. Based on similar projects we forecast total construction capex of $100m for a 15ktpd 3-stage crushing operation and a 12-month construction period beginning in 2015. Until then, we forecast CMM will require an additional $10–15m in funding for additional drilling, studies and permitting work culminating in a feasibility study by year end 2014.
· Solid track record increases our confidence in the project. Castle Mountain produced a total of 1.2moz of gold from 1992–2001, averaging 115kozpa at cash costs of ~$230/oz. Grade mined was ~1.2g/t and recovery was 76%.
Castle Mountain works at lower gold prices, and has more upside potential in an expansion scenario
· Our base case diluted NPV5% for CMM using spot gold ($1,250/oz) is $297m. We calculate a spot post-tax IRR for the project of 40%, and a payback period of just over two years – attractive near-term economics. Our target of $2.00 is based on our valuation using the gold forward curve (LT price of $1,436/oz).
· Upside potential from an upsized operation. Based on the entire 85mt indicated resource, and potential further resource expansion, there could be upside to our base case estimates from a larger initial operation processing up to 8.2mpta (the permit limit), or a later expansion/permit extension past 2025.
Rerating potential supported by comparable valuations and M&A possibilities
· We highlight comparable assets (see Fig 7) and average EV/resource valuations (see Fig 5), which imply a range of values from $270–350m for CMM vs. our estimate of $400m ($297m at spot gold). Based only on recent transactions, the value of CMM’s resource could be even higher.
· We are initiating coverage of CMM with an Outperform recommendation and $2.00 target. We recommend investors buy Castle Mountain Mining ahead of development catalysts in 2014.
Read more »
PDF (2644 KB, 26 pages)
Analyst(s)
Macquarie Capital Markets Canada Ltd.
Michael Siperco
+1 416 848 3520
michael.siperco@macquarie.com
Valeriy Dolgopolov
+1 416 848 3551
valeriy.dolgopolov@macquarie.com
November 26 2013
|
Over the last four years, 18 gold exploration projects were acquired for an average value of $117/oz (Table 1 below). If Castle Mountain were to be acquired at the average acquisition value of $117/oz, the implied value of its 4.1Moz resource would $480M, or $6.60/share (based on the current fully diluted share count of 73M). Even if CMM were to be acquired at only $60/oz, or half the peer average acquisition value, the implied share price would be $3.35, a premium of 272% to the current price of $0.90.
Castle Mountain has two advantages over the majority of the 18 projects acquired below:
1) it is a heap leach oxide deposit, requiring much lower capital and operating costs than either milling or underground operations; and
2) It is Permitted for production.
These two factors, combined with the scarcity of projects that has resulted from the 18 acquisitions below, should eventually cause CMM to trade at a premium to its peer market average multiple of $52/oz.
Any shares of CMM acquired in the market below a price of $1.30/share, would be equivalent to buying the resource at a valuation below $25/oz. This is a 50% discount the current average market valuation of peer companies of $52/oz (Table 2 below), and a 78% discount to the average acquisition value over the past four years of $117/oz.
Table 1. Recent Acquisitions of Gold Exploration Companies have an Average Valuation of $117/oz
Table 2. Castle Mountain’s Peer Heap Leach Deposits Trade at an Average Multiple of $52/oz. At a share price of $1.30, CMM would trade at only $25/oz.