canaccord today
Avion Gold Corporation | Eric Zaunscherb, CFA, 1.604.699.0829
AVR : TSX-V : C
.70 | C$199.9M | Speculative Buy , Target C$1.30
• Tweaking 2010 estimates upward but maintaining C$1.30 target and
SPECULATIVE BUY rating
Event
Earlier this week, Avion Gold reported Q4/09 gold production at the 80%-owned Ségala
and Tabakoto gold mining operation in Mali. With production of 21,307 oz at a cash cost,
before royalties, of less than US$495/oz, the operation delivered a record quarter.
Impact - positive
Production, driven by higher mill throughput, moderately exceeded our target for Q4/09.
This demonstration of production at a higher mill throughput rate leads us to nudge our
production rate in 2010 by 9% to 720,000 tonnes from 660,000 tonnes. This boosts gold
production to 74,300 oz from 68,100 oz.
Daily Letter Summary | 7
15 January 2010
Valuation and action
We apply US$850/oz long-term price deck and US$1,300/oz peak gold pricing scenarios to
our operational model for Ségala and Tabakoto. With our long-term price deck we estimate
a project NPV(7.5%) of C$192 million. Taking into account corporate adjustments yields a
corporate NAV of C$263 million. Applying a conservative 1.0x P/NAV multiple generates a
supportive C
.80 price target under long-term pricing, or a formal C$1.30 price target
under peak pricing. The 86% projected return continues to justify a SPECULATIVE BUY
rating. Avion Gold remains one of the least expensive of the gold producers under our
coverage, trading at 3.3x 2010 P/E, 3.1x 2010 P/CF and 0.62x P/NAV (5%, spot) versus
peer metrics of 11.6x, 8.8x and 1.12x, respectively.