NEW Paradigm Capital Research - $40c Buy TargetUpdated Resource at Golden Highway Exceeds Our Expectations Investment
Thesis.
Moneta Porcupine’s current flagship asset is the Golden Highway project near Timmins, Ontario. The project was previously envisioned as a large, bulk-tonnage, low-grade operation in a Dec. 2012 PEA, but as these projects fell out of favour (due to poor economics) the company changed focus in 2017 toward defining a smaller higher-grade, higher-margin project.
The latest resource estimated released in Nov. 2019 of 1.73Moz @ 4.38 g/t demonstrates the change of focus was successful. We see an exciting option to fast-track the existing resource to production by mining only and toll-milling at one of several nearby mills, cutting the timeline to production to potentially under two years. Event Moneta released an updated resource estimate for its Golden Highway project, increasing the total resources in the core area by 473Koz (+45% gain).
Highlights Total Resources of 1.73 Moz @ 4.38 g/t | The updated resource focused on the core zones, South West (SW) and West Block (WB). The total resources at SW/WB grew from 1.05Moz @ 4.32 g/t (Jan. estimate) to 1.53Moz @ 4.39 g/t — a 45% increase in contained ounces and a 1% in average grade. The zones outside SW/WB contain a further 0.20Moz (unchanged). More details of the new resource and the changes from the prior resource can be found in Figures 1 & 2. Resource Growth Exceeded Our Expectations |
We had been hoping the SW/WB resource would increase to ~1.25Moz, which would affirm our conceptual mineable resource of 1Moz (as we expect a portion of the resources not to make it into an economic mine plan). With the resource of the core SW/WB zone now sitting at 1.53Moz, we expect the mineable portion will grow to more like 1.2Moz. Drilling to Expand Resources,
Economic Study in Early 2020 | Moneta is fully funded and has commenced the next stage of drilling to test the resource expansion potential of the WB area of SW, the Windjammer South and 55 deposits, as well as the Halfway and Westaway target areas. We also expect the company will commence an initial economic study (PEA or scoping study) centred on this new SW/WB resource in early 2020. Valuation & Conclusion Our initiation report on Moneta outlined a conceptual development plan of ~1Moz @ ~4 g/t, on the assumption that the ore would be shipped offsite for toll-milling rather than building a stand-alone mill for the project.
We still think this is an attractive option that reduces the timeline to production drastically (full production possible in 2022). We believe conceptual development could give a project with strong economics (>50% IRR) and fast payback (<1 year). However, with the strong resource growth over just the past 10 months and abundant remaining targets, the project is also showing good potential to grow into what could be a stand-alone project, if exploration is aggressively funded. Moneta is trading at just US$14/oz of total resource, or US$21/oz based on our estimated mineable resource, much lower than the ~US$40/oz average valuation of our Takeover Twenty development names. An independent economic study (expected in 2020) affirming a development similar to our concept could certainly help narrow that gap.
We also see Moneta as an attractive acquisition target, particularly for the owners of the nearby area mills (incl. Goldcorp, Silver Standard, McEwen Mining, and Kirkland Lake Gold).
We reiterate our Speculative Buy rating and $0.40 target.