MPartners research reportBelow is an objective research report witha $.72 price target.
To the posterrs that keep bashing each other, please go away.
We have a
Research Flash on
Trigon Metals Inc. (TM – TSXV). This morning, TM released a resource update from the Kombat Mine. The update included a Measured and Indicated Resource of 12.25 Mt at 1.94% Cu and 5 Moz Ag at 13.65 g/t. Indicated copper resources are up 113% from the previous 7.35 Mt and Silver Resources were up 2,253%. The silver upside was not previously expected and equates to about 80 Koz AuEq. This upgrade solidifies our view that the Kombat resource is of significant size and that the upcoming PEA will bring forth substantial value.
Though there was a sizeable upgrade in M&I resources, the combined Inferred and Indicated resource was reduced as a large portion of the Inferred resources were not included in the resource because TM used stricter criteria than the previous operator. The previous operator was fairly liberal with their grade smears and TM management wanted to have more confidence in the resource by being stricter with resource estimation. This confidence in the resource will allow TM to build a firm mine plan and later execute on that plan without risk of missing targets due to resource overestimation.
COMPANY UPDATE We believe that Trigon Metals is significantly undervalued with a sizable resource, production just 5 months away and its Silver Hill asset producing promising results early on in its campaign. TM continues to go unnoticed despite plans to unlock the Kombat Mine and use cash flows to further explore its sizeable assets without dilution to shareholders.
UPCOMING CATALYSTS - Kombat Mine restart by end of Q4. TM recently announced they would begin production by year-end and have positive cash flow in early 2022. The mill is relatively small with a capacity of 1,100 tpd and expects to produce recoveries between 85-90% as the ore is overwhelmingly sulphides. Production will begin from a newly developed open pit producing head grades of 1.0% Cu. TM indicates there is significant room to optimize the mine for further growth. Firstly, with the grinding process being the bottleneck, TM plans to improve its efficiency to match the spare capacity of the crushing and flotation processes, bringing mill capacity to 2,000 tpd. In years 2 & 3, TM will begin recovering ore from underground operations which will increase the head grade to 1.94% Cu, boosting production to 32 Mlbs Cu by 2024. However, even at 32 Mlbs Cu per year, the mill is still significantly undersized with a mine life well beyond that of a typical mine. The mine is fully permitted and currently has 90 staff on site preparing for the start-up.
- PEA on “Larger Project” expected in next few weeks. Since the existing mill is undersized, TM plans to release a PEA on a project without mill constraints to better show the true potential of a resource of this size. We believe this will be a significant catalyst for TM and is expected late Q3 to early Q4.
- Kombat resource ongoing exploration. Currently, the resource consists of 5.32 Mt of 1.0% Cu accessible by open pit and 6.93 Mt of 2.66% Cu accessible by underground. 86.5% of the total resource is in the Measured and Indicated category. Cashflows from the Kombat mine start-up will fund a new expanded drilling campaign.
- Silver Hill continues to produce results. As mentioned above, strong mineralization was found on the fourth fence located 2km west of the high-grade trench TM has been exploring. The company is going to spend the next few months determining if the two zones connect or are separate ore bodies.
Kombat Valuation: Our model values the Kombat Mine at $108M (modelling mining of open pit and underground M&I resources at resource grades) which equates to an adjusted NAV of $120M and $0.73/share by applying an 8% discount. TM currently trades at $0.46/share with a P/NAV of 0.5x compared to peers at 1.0x.