E-Mail today About GlobeStarFriday, November 10, 2006
GlobeStar Mining Corporation (GMI-V: $1.15) Rating: BUY
Site Visit Highlights Excellent Value in GlobeStar Target: $2.00
Matthew O’Keefe 416.815.3087 mokeefe@westwindpartners.ca
Nana Sangmuah 416.815.3113 nsangmuah@westwindpartners.ca All figures in C$ unless otherwise noted
Sources: Company Reports, FactSet, Westwind Partners
Insight or Development
We recently visited the Dominican Republic to review GlobeStar’s copper
and nickel assets as well as toured Xstrata’s Falcondo nickel operation.
Development of the Cerro du Maimón copper-gold mine is proceeding as
planned. The near-mine exploration program looks promising and should
provide additional news flow during the construction period.
Falcondo needs to increase its reserves, which could in part be satisfied by
GlobeStar’s excellent nickel potential.
GlobeStar’s stock currently offers excellent value at these levels, trading at
0.6x our NAV.
Analysis
Cerro de Maimón Mine Moving Ahead: We were pleased to see that site
preparation is under way with access roads, site clearing and office construction
well advanced. The selection of an Engineering Procurement Construction
Management (EPCM) team is expected next week. This will pave the way for
mine and mill construction, which we expect to be completed in about 18
months. As such, GlobeStar remains on track for start-up in the first half of 2008.
Don’t Forget the Copper and Gold Exploration Upside: GlobeStar’s
strategy is to bring the Cerro de Maimón mine into production and extend the
mine life with additional feed from other discoveries. After closing a $30 MM
financing in August, GlobeStar can finally mount a proper exploration program
for the belt. The company's additional resources (Loma Pesada, Donna Amanda
and Dona Loretta) will be assessed for their compatibility with the Cerro de
Maimón mine. Other showings and targets are also being followed, but we are
most interested in the results of an airborne geophysical survey that will be
conducted over the belt in December. VMS deposits like Cerro de Maimón
occur along trends. We see a good chance for new VMS discoveries. The existing
data is about 25 years old and was limited to detecting very near-surface
anomalies whereas today’s technology can “see” much deeper.
Nickel Resource for 2007: Our visit included a flyover of the 43-km nickel
laterite concessions, an examination of Cumpie Hill drill core and a tour of
Xstrata’s Falcondo nickel operation. It was clear from the flyover that
GlobeStar’s nickel concessions are indeed large and we continue to see good
potential to develop upward of 10 MM tonnes of high-grade nickel laterite. At
Falcondo, three things were evident: 1) Xstrata’s takeover is being well received;
2) significant capital projects such as converting the power plant from oil to coal
and expanding operations are being seriously considered; and 3) a new
high-grade resource is urgently needed. This is good for GlobeStar whose
ground arguably holds a key component of Falcondo’s future. GlobeStar’s
drilling delays seem to be over and drilling at Cumpie is expected to start up
again this weekend. We expect a preliminary nickel resource in Q1/07.
Conclusion
GlobeStar has set itself up with a very active exploration program to parallel the
construction of the Cerro de Maimón mine. Exploration work is accelerating,
which should provide increased news flow and refocus investor attention.
GlobeStar stock currently offers excellent value at these levels trading at 0.6x
our NAV, supporting our BUY rating. Our target price remains $2.00.
Globestar Mining Corp. (GMI-CA)
9-Nov-2005 to 9-Nov-2006 (Daily) High: 1.640
Canadian Dollar Low: 0.430
Last: 1.150
What’s Changed
Old New
Rating BUY Unchanged
Target $2.00 Unchanged
Market & Financial Data
Valuation
($ MM) ($/Share)
Cerro de Maimon Mine (8% Disc. Rate) $74.3 $0.97
Exploration Assets (Cu-Ag-Ag-Zn) $15.0 $0.20
Nickel laterite $35.0 $0.45
Subtotal - Operations $124.3 $1.62
Working Capital (pro-forma) $74.9 $0.97
Long-term debt (pro-forma) ($43.8) ($0.57)
Subtotal - Balance sheet $31.1 $0.40
Net Asset Value $155.3 $2.00
Market Cap (MM) $88.4
Float (MM) $70.0
Adjusted Market Cap* (MM) $64.0
52-week Range $1.64–$0.43
Fiscal Year-End Dec. 31
Basic Shares O/S (MM) 76.9
F.D. Shares O/S (MM) 89.2
Target Price $2.00
Total Potential Return 74%
*Market Cap Minus Working Capital Plus Long-term Debt