Quebec Copper and Gold Inc. – SPECULATIVE BUY
Initiating Coverage of Quebec Copper and Gold Inc.
ACTION: Initiating Coverage with a SPECULATIVE BUY and $0.90/sh Target
We are initiating coverage of QC Copper and Gold Inc. (QCCU, TSXV:QCCU) with a
SPECULATIVE BUY rating and $0.90/sh target price. We believe that QCCU’s Opemiska
is a quality exploration/pre-development copper-gold project with the potential to become
a mine. Given the low political risk jurisdiction, extensive infrastructure and location in an
historic mining camp, we believe many of the traditional risks for exploration, development
and mining are reduced for QCCU when compared to many of its peers.
DETAILS: Turning Small, Old High-Grade Mines into New, Large Open-Pit Mines
QCCU is following a well-trodden path as it seeks to redefine old, past producing, highgrade
mines as large, open-pit mines with lower grades. This has been done very
successfully in other mining camps, notably: Canadian Malartic and Detour, both in
Canada.
To date, QCCU has defined a resource (79% in the measured and indicated category)
containing 103 million tonnes grading 0.62% copper and 0.31 g/t gold (0.86% copper
equivalent grade). The current resource is dominated by material close to the vein
structures (the high-grade veins were, for the most part, mined out) and the remainder is
Halo mineralization. It is very important that QCCU infill the resource pit shell with
drilling to better define the Halo mineralization and the Saddle zone which we believe will
be crucial to driving the economics of the project.
Going forward, we see few major risks for QCCU aside from the normal risks associated
with exploration. Quebec is a very mining friendly jurisdiction, the geology lends itself to
the ability to grow the resource, and the company is well financed for an aggressive drill
program in 2022. There is one risk that stands out and it is the proximity of the open pit
resource to the town of Chapais. In our view, this is not a “deal killer” rather it is a hurdle
that must be overcome and there are precedents for both moving a town to develop a mine
and mining very close to residential areas.
Looking to the longer-term, we think there is a good chance that QCCU will define new
mineralization that will reduce the strip ratio (currently about than 7:1) and may allow for a
deeper pit and larger resource. Should QCCU successfully accomplish its goals, we think
that the Opemiska project will become a very interesting target for acquisition.
VALUATION: Creating Value Through the Drill Bit and then Maybe M&A
Our $0.90 per share target price is calculated by using US$0.05 EV per pound of contained
copper equivalent. This is at the higher end of the range of comparables, but we believe it is
justified by the grade of Opemiska that has one of the highest open-pit copper grades in
North America for exploration projects. We believe that investors should consider QCCU
for copper exploration/development exposure with the potential, in the mid to longer-term
for a sale of the company/project. We rate QCCU a SPECULATIVE BUY.