RE:Paradigm Capital: Spec. Buy rating and C$2.00 target for ERD2.00 Target it's alot !!!!!
Don MacLean, Sr. Analys also write this research note back in 2017.
https://cdn.ceo.ca.s3-us-west-2.amazonaws.com/1ctqlmc-Gold%20Sector%202017%2010%2010.pdf Seem accurate but numbers talk better !
DD
GLTA
Frasso4500 wrote: According to Paradigm Capital:
https://docdro.id/GvdWgNk
RESEARCH NOTE | July 22, 2020
Rating: Speculative Buy
unchanged
12-Month Target: C$2.00
Unchanged
Feasibility Study Outlines Robust Project with Short Timeline to Production
Investment Thesis. Erdene’s 100%-owned Bayan Khundii (BK) project in Mongolia shows many of the features that we look for in a discovery: high, continuous grade; near surface, and good metallurgical recovery. As exploration momentum starts to pick up, we are excited about the major camp-scale upside potential. Combined with management’s deep roots in Mongolia, we remain excited about the potential for a 2Moz+ camp.
Event
Erdene released its Bankable Feasibility Study (BFS) for Bayan Khundii (BK). While a small project, it is one of the most robust development projects we are aware of and it has a short path to production (2022). At today’s gold price, the resultant cash flow is impressive. We feel the cost estimates are now more realistic than the Pre-feasibility Study (PFS). We discuss our model assumptions, which are a mix of more conservative costs and more optimistic resource potential, in keeping with our previous note published on July 3.
Highlights
• Feasibility Summary I Figure 1 compares key elements of the Bayan Khundii Feasibility Study (FS) to the previous PFS and to our updated model. The scale and reserves remain the same at 1,800 Tpd, 0.4Moz proven and probable (P&P) and annual production of about 63.5Koz/year. The capital is up by about half, to $59M, a more realistic estimate in our opinion and it now has a ±10% accuracy. The FS was carried out at $1,400/oz, at which the IRR is a robust 42%, payback 1.9 years (out of 6-year producing life) and NPV @5% is $100M. However, today’s market is driven by the spot price; at $1,800/oz the IRR is 77% and the NPV @5% doubles to $216M. Construction time is a little more than a year, and management believes the first pour could be as early as Q1/22.
• Our Estimates I Figure 1 also summarizes our model, which we have adjusted to reflect the higher capital and some minor tweaks to operating cost assumptions, but generally, not that material in impact. For example, we had been using $44M for construction capex. Raising this to $60M only lowers our NPV by 5%, some of which was offset by a lower strip ratio (we now use 10:1 vs. 11:1). We continue to use a mineable resource of 0.6Moz at 3.7 gpT, not the reserves of 0.4Moz at 3.7 gpT. We are comfortable that new discoveries, such as the high-grade portions being found in Midfield SE and Striker SW, plus conversion of some of the 0.7Moz of other resources and new discoveries such as Dark Horse, will handily exceed the 0.2Moz extra we assume within our 1–2-year time frame. On the other hand, we assume a higher AISC of $922/oz versus $733/oz in the FS, the result of higher sustaining capex ($60/oz vs. the FS assumed $3/oz), higher processing, G&A and slightly lower recovery — all to provide a cushion for our additional ounces not being as good as the current reserves. Time will tell. The resultant higher costs and higher mineable resources leave our estimates pretty close to the FS; i.e. at $1,800/oz, our IRR is 78% and NPV @5% is $232M, with a one-year payback out of an 8-year life averaging 68Koz/year. All told, BK is a sweet project with plenty of exploration upside, as we discussed in our July 3 research note.
Valuation & Conclusion
The Bayan Khundii FS is an important de-risking step, positioning Erdene to move quickly to production (Q1/22 potentially). We approach this step from developer to builder with some trepidation, given the history of disappointments the sector has seen, where actual results fall short of plan. Two things give us considerable comfort in Erdene’s case. First, the project is remarkably robust (IRR >70% at $1,800/oz) allowing it to withstand significantly higher costs. Second, we see plenty of upside to the mineable resource from exploration. Indeed, our own model assumes substantially higher costs (life-of-mine [LoM] AISC $922/oz vs. FS $733/oz), but we also allow for more mineable ounces (0.6Moz vs. 0.4Moz). The result is a project that will generate considerable value for shareholders and our NPV and IRR are similar to the FS at $1,800/oz (i.e., we carry an IRR of 78% vs. 77% in the FS and NPV of $232M vs. $216M, respectively). Erdene’s share price has been very strong leading into this release, closing at C$0.50 on July 21, the day after the announcement, up 57% in the past month and 130% in three months, compared to the 90 Explorers we monitor up medians of 32% and 85%, respectively. With a market cap now of ~$95M versus the median Explorer of $44M, does that mean ERD is getting ahead of itself? We don’t think so. ERD is shifting into the Developer ranks, given the short timeline to production. The $60M capex would have been a struggle to finance just a few months ago, but now appears possible in today’s much-improved market for small-cap golds (the median explorer now has a market cap 2.5x what it was four months ago). The median market cap of the 50 Developers we monitor is $192M, putting ERD’s ~$95M market cap into a different context. That said, unlike many of the Developers we monitor, including many of our favourites in the Takeover Twenty, Erdene has quite promising exploration potential (discussed in our July 3 and July 17 research notes), rekindled after a few quiet years when funding was tight, an ideal blend for today’s market.