Intchains Group Ltd V.ICG

M Partners: Buy rating & $1.00 target price for Integra Gold

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According to M Partners:

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INTEGRA GOLD CORP. (ICG - TSXV, $0.345)

Rating: BUY

12-Month Target: $1.00

TRIANGLE ZONE PROGRESSING; RESOURCE UPDATE PENDING

Positive permitting update continues to de-risk the Lamaque South project. Integra provided a detailed permitting update, highlighting that all provincial permits are received for underground exploration and a bulk sample. Importantly, the bulk sample permit allows Integra to mine up to a limit of 5,000 tonnes. As well, Integra reported modification for existing permits at the Parallel zone were approved, which could allow mining to begin from the existing Sigma infrastructure. We continue to expect Integra to develop the higher grade, higher potential Triangle zone first. Overall, we view the update positively, as Integra continues to de-risk the project by acquiring and modifying the necessary permits for production.

Surface work needed for underground exploration at the Triangle zone nearing completion. In conjunction with the permitting update, Integra reported that development of the project site is proceeding on schedule and on budget, with road access, site infrastructure foundation construction, and portal blasting completed (Figure 1). Integra expects to have all the surface work needed complete by the end of 2015 (currently 80% complete), suggesting that with funding, ramp development and underground exploration could start in early 2016, which is in line with our estimates. We continue to model an initial bulk sample and pre-commercial production at the Triangle zone starting in H2 2016, with production progressively ramping-up and commercial production starting in H2 2017.

Resource update imminent; C-zones likely to drive growth. Integra reiterated it expects to release a resource update later this quarter. We expect the update to be an important catalyst for the stock as the resource will be the first to incorporate Triangle’s thicker, more vertical “C” structures, which have the potential for a much higher percentage of long-hole mining and consequently lower costs. We note the Triangle zone comprises ~55% of the current 1.09MM oz resource (February 2015) at a 5.0 g/t cut-off (0.59MM oz at 10.6 g/t). The C zones, which have been the focus of late, only represent ~30% of the Triangle zone. Due to positive results to date and our preliminary estimates for the C4, we believe the Triangle zone resource could increase by ~50%, which would imply potential resource growth of 25% for the overall project.

Ongoing drilling to provide near-term support for the stock. Integra expects to release drill results from the Parallel zone next (21 holes), followed by ongoing results from Triangle. As well, the company plans to drill another 100,000m in 2016 and is funded to complete the planned program. Of note, with over 1,000 competitors now registered, the Gold Rush challenge is very likely to increase its profile among investors, and could provide support for the stock.

We rate Integra BUY with a 12-month target price of $1.00 per share. Our target is based on applying a 0.80x multiple to our NAVPS8% estimate of $1.21 (was $1.23). Integra currently trades at 0.29x NAV and $32/oz, versus peers at 0.35x NAV and $22/oz. We believe the high-grade, low-operating cost and lower capital intensity of Integra’s Lamaque project should warrant a premium valuation relative to peers, particularly as the project is de-risked and progresses towards production.

POTENTIAL CATALYSTS AND EVENTS

• 2015 – Ongoing drill results from current exploration program (Five rigs turning)

• Q4 2015 – Updated resource

• H1 2016 – Updated PEA with new resource model