Mackie Report: Buy, Target $2.10 Here's the direct link to the Mackie report
https://secure.mackieresearch.com/docid.php?docid=16902&ip=739401413a1d870bab7a79fca65c555169a14cea&o=a8bc0b52 [copy & paste to your browser - can't get link to work in Stockhouse]
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Expect A Resource Update
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EVENT – Where to from Here – It Gets Better
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We took the opportunity to update ourselves post elections in Senegal to get a better understanding of what to expect over the next months. Election went smoothly; government to form shortly: Post successful elections, the newly elected President (Macky Sall) has appointed the Prime Minister, and 25 Ministers have been named. Transition of power is to occur this week, and ministries should be functioning within weeks. The OJVG have outstanding the final signature from the Minister of Environment for the Environmental and Social Impact Assessment (ESIA), which is the last step in getting final approval. Once finalized, theoretically OJVG could commence development. New resources, reserves and feasibility study due: The OJVG are working on a resource update for July/August, followed in two months by update reserves, then an updated feasibility study by year-end. Since the last resource in June 2011, more than 250 holes have been drilled, and since reserve were last calculated in 2010, more than 760 holes have been drilled. Budgeted amount for this 2012 activity is ~$6.5 million, of which OLE’s share is 50%. As of Nov. 2011, OLE had ~ $4.4 million W/C.
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IMPACT – Positive. Good Reserves and Resources Expected
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Anticipate material increase in resources and reserves, allowing for better economic viability: The prior resource was ~3.8Moz (2011), and the reserve was ~1.4 Moz (2010). Incorporating recent drilling, we anticipate a new resource in excess of 4.5Moz and a reserve of ~2.0Moz (including heap-leach). The overall impact on economic viability should be very positive. Further, resources and reserves remain open, particularly to depth. Incorporating resources and reserves of this magnitude in our model (at 8%dcf), the underlying NAV of OLE increases to $4.28 from $3.28, all at our higher gold price assumption of $1,650 long-term.
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ACTION – We See Value. Remain a BUY
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We continue to see good underlying value in OLE, the overhang being a rather complicated financial structure within the OJVG and the possibility of a corporate reorganization, and a bit of political uncertainty attached to a new government. However, we have lowered the target price to $2.10 from $3.25 to reflect a lower target multiple of 0.5x NAV from 1.0x, more in-line with peers developing a new mine.