Canaco Analysis
Canaco Resources Inc.
Magambazi's Missing Pieces: Resource Expectations
Overestimated
Stock Rating: Sector Underperformer
12-18 mo. Price Target
.40
? We have reduced our price target for Canaco from $2.80 to
.40, and
changed our rating from Sector Outperformer to Sector Underperformer, as
of May 17, based on the maiden resource estimate for Magambazi coming in
well below initial expectations, which we believe is uneconomic at this time.
? The maiden estimate included 1.01M oz. at 1.44g/t, which is substantially
lower than our estimate of 1.7M oz. at 3.4g/t. We also anticipated continued
expansion in 2012, but now believe no resource expansion at Magambazi
(MGZ) is likely this year as regional drilling will not commence until H2.
? We did not fully account for the impact on total tonnes from decreasing
continuity of ore, particularly in the central portion of the Magambazi Main
Zone. Also, we did not foresee the likelihood of a top-cut well below the
weighted average grade of drilling at MGZ.
? Although we do expect some expansion of resources will be realized within
the Handeni project, we believe resource growth may not be sufficient to
warrant development of the project. Our revised valuation for CAN is based
on net cash plus a $10/oz. call option value on total estimated ounces.