BMO Nesbitt Maintains $5.50 Target Sabina Gold & Silver
(SBB-TSX)
Stock Rating: Outperform(S)?
Industry Rating: Outperform
February 21, 2013
Research Comment
Toronto, Ontario
Andrew Kaip, P.Geo.
BMO Nesbitt Burns Inc.
(416) 359-7224
andrew.kaip@bmo.com
Assoc: Scott Gryba, P.Eng., P.Geo.
Back River M&I Resources Grow 12%;
Adds High-Quality Ounces
Event
Sabina announced a resource update for the Back River project in Nunavut. The
measured and indicated (M&I) resources increased 12% to ~4.7Moz gold (from
4.2Moz), while the inferred resource grew 14% to ~1.9Moz gold (from
1.7Moz). Resource growth is largely due to the addition of inferred ounces at
George as well as M&I ounces at the Umwelt underground. M&I and inferred
gold grades have increased 8% and 40% to 6.0g/t and 7.8g/t, respectively.
Improved grades benefit from the application of higher cut-off grades for both
open pit (0.75g/t to 1g/t for Llama) and underground resources (2g/t to 4g/t). As
of the end of 2012, SBB had ~$116M in cash. The company has budgeted $70M
for field work over 2013E in support of a pre-feasibility study expected Q3/13.
Impact
Positive. SBB continues to grow the resource potential at Back River. The
application of higher open-pit and underground cut-offs has improved grades,
demonstrating the potential for the project to deliver higher-quality ounces and
improve overall project economics as the company moves through the prefeasibility
stage.
Forecasts
BMO Research models average annual production of 288koz at total cash costs
of US$637/oz at Back River, beginning in 2017E.
Valuation
SBB trades at 0.6x the 10% nominal NPV of US$3.35/share at spot metal
prices, in line with junior gold peers.
Recommendation
Sabina Gold & Silver is rated Outperform (Speculative) with a C$5.50 target
price. The C$5.50 target price represents 1.6x the 10% nominal NPV using spot
gold prices.