Montauk Metals Inc V.MTK

Update from Canaccord

[jmlguy]

(plus a blurb from Nevsun attached by accident)   

Gold Wheaton valuation and target lowered on uncertain MWC gold stream;

graduates to TSX and completes 10-for-1 share consolidation

We published twice on Gold Wheaton last week. Initially, we highlighted the impact of

First Uranium’s announcement regarding its revised plans for the MWS tailings project

Precious Metals Weekly | 3

8 February 2010

in South Africa, including suspension of construction on the third gold plant and scaling

back gold production from two plants to one by the end of March 31, 2010.

While these plans would allow MWS gold production to continue until December 2011 at a

significantly reduced output, the non-completion of the full expansion could trigger a $42

million penalty payable to Gold Wheaton. The MWS project’s future beyond December

2011 remains uncertain given a lack of tailings capacity without additional permits.

The impact of this announcement (prior to the completion of the 10-for-1 consolidation)

served to reduced our 5%/peak NAVPS estimate (MWS discounted at 10%) by

US
.12/share, explained by significantly lower expected deliveries from MWS in

CY2010 and CY2011 (-
.03/share) and a conservative assumption of cessation of MWS

gold production beyond December 2011 (-
.11/share) partially offset by the $42 million

penalty payment from FIU (+
.02/share). There is upside to our valuation if the MWS

project were to be restarted subject to FIU’s financing capacity and a favourable

permitting decision.

Later last week, the company graduated to the TSX from the TSX Venture Exchange and

completed its proposed 10-for-1 share consolidation. Our target price adjusted for the

share consolidation is now C$3.75, based on 1.0x our 5%/peak NAVPS estimate

(@$1,300/oz Au) of US$3.55, translated using an exchange rate of US
.95/C$1.00. We

note that our valuation currently reflects a reasonable worst-case scenario of cessation

of gold production at First Uranium’s MWS tailings project by December 2011.We

maintain our BUY rating on Gold Wheaton given the implied return to our conservative

target price, which could improve subject to a potentially favourable re-permitting/restart

of the MWS tailings project.

Investment risks

The typical risks associated with any mining investment include commodity and exchange

rate risk, permitting, technical (development/operating) and financing risk. In particular,

investors in Gold Wheaton should consider the risks associated with the early-stage nature

and limited official resource declared for the Levack Footwall deposit, and permitting/

development risk associated with the First Uranium MWS and Ezulwini projects.

Nevsun private placement removes financing overhang; target modestly lowered on

dilution

Finally, Nevsun announced a non-brokered private placement of 52 million shares at

C$2.25 per share for net proceeds of C$117 million (US$110 million). Following the

close of this transaction, Nevsun should have sufficient funds to meet its share of initial

capital expenditures for the Bisha project.

This news is positive in the sense that the financing allows the project timeline to

advance, but slightly negative to our target price as dilution and modestly higher capital

requirements (+$10 million announced January 2010) more than offsets a justifiable

reduction in the discount rate applied for target price setting (from 15% to 12.5%).

Our 12-month target price has been reduced to C$3.90 based on 1.0x our 12.5%/diluted

NAVPS estimate of US$3.73 (previously 15% undiluted NAVPS estimate of US$3.83),

translated at US
.95/C$. We maintain our SPECULATIVE BUY rating on Nevsun shares.