Reunion Gold Corp V.RGD

from SCP today re Reunion

[CanInvestor1955]

Reunion Gold (RGD, C$1.00 Target Price)

Oko West’s maiden 4.2Moz @ 1.9g/t open pit resource hits the upper range of our target—an exceptional ‘first look’ for a demonstrably world-class asset that even now only remains constrained by lack of deeper drilling. With the MRE double our modelled inventory, we lift our prior 3.4Mtpa @ 2.0g/t 200koz pa operation to 6.5Mtpa @ 1.8g/t at ~350koz pa, with ~380koz pa Y1-3 given higher grades at surface, still potentially beatable given the softer near-surface ore. We still see plenty of runway for resource growth to >5Moz, but with satellites and UG potential excluded, we see very good potential for satellites, extensions and an UG to lift this to >10Y. Even modelling capex / opex above peers (discussed in this report) drives our NAV5%-1850 at build start of C$2.5bn (+69% prior), with AISC of just US$790/oz, a 2-year payback and 55% IRR. As such, we maintain our BUY rating and 0.4xNAV5%-1850 multiple, lifting our PT from C$0.75/sh to C$1.00/sh, and putting the stock on just 0.2xNAV. The upside is simple, more ounces. More specifically, today’s MRE is a solid foundation to unlock value on several fronts: (i) NAV-accretive ounce addition from strike extensions, laterally (10m @ 17g/t in FW granitoid), at depth, and regionally (incl. 17m @ 1.7g/t on first scout RC to the west), but in step with (ii) value upside from engineering / reserve conversion de-risking: by our math, the stock still only trades at an EV US$79/oz inventory and US$88/oz/pa production against producers at >US$200-600/oz reserve respectively, showing the upside to be unlocked. Lastly, (iii) M&A is an alternative exit given the quality of this asset and management team. Oko West is among a select few assets globally with visibility on >350koz pa at high-margins (SCPe >US$1,000 AISC margin at spot), leaving RGD well positioned as an attractive (and competitive) takeout candidate in our view.