CIBC World Markets Target $20.00 Apr 1Aurelian Resources Inc. (ARU, $9.79, Sector
Outperformer-Speculative) Target Price: $20.00
According to CIBC World Markets analyst Barry Cooper, Aurelian
Resources Inc. owns what could be the most impressive gold
deposit discovered so far this century. Current estimated resources
for the company’s Fruta del Norte (FDN) deposit in Ecuador total
13.7 million ounces, a number Mr. Cooper believes could increase
substantially due to the high-grade nature of the deposit.
Despite the deposit’s size and grade, Aurelian shares have
been held back due to political uncertainty in Ecuador. The
country’s government is currently assessing new mining laws,
which will determine the tax and royalty rates to be imposed on
mining projects. Mr. Cooper believes the laws will allow the
government to take about 50% of the economic interest of FDN.
Factoring in this expectation, his target price for Aurelian shares is
$20, which represents 104% upside from their recent trading price.
Several catalysts could unlock Aurelian’s underlying value. Mr.
Cooper believes the company will continue to post drill results that
substantiate the prior high-grade data and increase investor
confidence in the deposit. Meanwhile, passage of Ecuador’s mining
laws is scheduled for May, with possible constitutional changes
clearing the way for corporate activity in the country. Moreover,
Mr. Cooper is bullish on the price gold, forecasting an average gold
price of US$1000/oz. in 2008 and US$1200/oz. in 2009.
While Mr. Cooper believes Aurelian is capable of bringing
the FDN deposit into production, he expects the company will
receive a takeout bid from one of many senior gold producers
that would find the asset attractive. Such senior producers have
struggled to maintain production levels in recent years, resulting
in numerous acquisitions of growth-oriented gold companies.
Mr. Cooper believes resolution of the political uncertainty
will reduce the discount currently being placed on Aurelian’s share
price, even if a takeover bid does not materialize. He applies a
Speculative qualifier to his Sector Outperformer rating, given the
current political uncertainty and the early stage of the deposit.