25 Jan. Recommendation Canaco Resources Inc. |
Nicholas Campbell, 1.604.643.7027
CAN : TSX-V : C$1.24 | C$279.2M | Speculative Buy , Target C$5.00
•
Handeni: 2012 exploration and development program; maintaining SPEC BUY
rating and C$5.00 target
Investment recommendation
We are maintaining our SPECULATIVE BUY recommendation on Canaco
Resources with a 12-month target price of C$5.00.
Investment highlights
•
Canaco has approved a US$35-40 million 2012 exploration budget, and is
currently drilling 10,000 metres per month at Handeni with nine diamond
drill rigs and one RC rig.
•
Six of the drill rigs are focused on delineating the Magambazi resource in
preparation for the initial resources estimate. Two diamond drill rigs are
focused on the Kuta and the Magambazi North Extension targets. The
remaining diamond drill rig is operating on the Majiri target, where previous
surface sampling and RC drilling indicate a gold anomaly. The RC drill rig is
currently operating on the Bahati target to test preliminary regional targets.
•
We are expecting an initial resource and metallurgical test results in Q1/12,
and a PEA in Q3/12. We are expecting an initial resource of 2.3 million
ounces of gold at a grade of 3+ g/t gold. Previous metallurgical testing
indicates recoveries of 90+% using a conventional CIL process.
Valuation
With US$110 million in cash, we believe the company is in a strong
position to continue to derisk and advance the Handeni project. Our peak
gold price estimate of NAVPS (10%, US$1,750/oz) remains unchanged at
$7.50. We continue to value Canaco based on a 0.65x multiple to our peak
gold price estimate of NAVPS.