TD Update and New Target $25.00Central Resource Impresses; Targeting Major Growth in Cluster
Event Yesterday morning, Solaris reported an updated resource estimate for the Warintza Central deposit at its Warintza Project in southeastern Ecuador.
Impact: SLIGHTLY POSITIVE
Solaris reported total resources of ~1.5 Bt at 0.52% CuEq (well above our previous estimate of 1 Bt at 0.53% CuEq). Additionally, the company reported an ‘Indicative Starter Pit’ comprising 287 Mt at 0.79% CuEq.
In our view, yesterday's updated resource demonstrates a baseline for the project (Warintza Central forms part of a 7km x 5km cluster of porphyry deposits), featuring a high-grade indicative starter pit (quick payback period) and low strip ratio, within a mining district offering structural advantages from highway access, low-cost hydroelectric power, fresh water, and low elevation.
Ongoing drilling is targeting further growth, with an emphasis on the open extensions of near surface, high-grade mineralization at Warintza Central and expanding the recent Warintza East discovery to include it within a shared pit, while testing the further potential within the cluster.
Our view that Warintza provides strong exploration upside exposure continues to increase, given recent results. In an effort to be conservative, our model for Warintza does not incorporate the West/South discoveries or other targets (Yawi, Caya, etc.).
We have updated our model for the company's new resource estimate and assumed an expansion to 40 Mtpa (from 30 Mtpa previously). Net of these and other changes, our corporate NAV increases to C$23.06/share from C$19.66/ share. Our target price increases to C$25.00 (from C$22.00) on our higher NAV10% estimate.
In summary, we see the company as very well-positioned. There has been a dearth of discoveries over the past two decades, leaving the pipeline slim to fill the looming copper supply gap. We see Warintza as a natural acquisition target as the company continues to advance the project. TD Investment Conclusion World-class discoveries are rare and unique, and we believe that Solaris is in the early stages of making multiple world-class discoveries among its cluster of porphyries on the Warintza property. We expect the stock to continue to re-rate higher as the company demonstrates the growth potential of the project.