It’s no longer 2008 but that hasn’t stopped Inter-Citic Minerals (TSX: T.ICI, Stock Forum) from going for gold in China. Its stock price is also making a push for the podium, climbing 171% during the past year (as of March 2, 2010).
Inter-Citic’s Dachang gold project, in the northwest part of the country, is estimated to have measured and indicated resources totaling 1.34 million ounces grading 3.37 grams per tonne (g/t) gold plus 1.14 million ounces at 3.00 g/t in inferred resources.
Sandfire Securities analyst Catherine Gignac, in a report from December 2, raised her target price on Inter-Citic stock from $1 per share to $1.50 all while maintaining a “speculative buy” rating. Gignac argues that “based on the August 2009 Preliminary Assessment and, The NPV 10% of the Dachang project is estimated at US$165.8 million or $1.46/share for Inter-Citic’s interest, using a gold price of US$800/oz. Inter-Citic’s total net asset value (including working capital) is estimated at $1.51 per share.” Sandfire, however, has a disclosure that includes owning 1% or more of the company stock as well as performing investment banking services in the proceeding 12 months.
Meanwhile analyst Haytham Hodaly of Salman Partners, in a research report dated January 12, 2010, also has a “speculative buy” recommendation but a $1.65 price target on the shares of Inter-Citic. Hodaly cited the company’s January 11, 2010, news release, in which Inter-Citic made a new gold discovery representing a new type of mineralization, different to that of the Dachang Main Zone, in a region about nine kilometers northwest. Drill results included 21.3 metres of 2.3 g/t gold. It should be noted that Salman also provided underwriting services to Inter-Citic during the past 24 months.
Stephen Lautens, Inter-Citic Minerals’ VP of Corporate Communications, told Stockhouse the company is currently doing the work required for permitting, but is questioning whether it will do a Western bankable feasibility study since it doesn’t see itself raising money for the project in the West. “The cost of doing a bankable feasibility is somewhere between $10 million and $20 million, so why spend it if you’re not going to actually take it to the market that requires it,” he says.
One of the biggest risks to this stock, at least in the minds of many potential investors/speculators, involves the company putting all its exploration dollars into a project that could easily be meddled with by China’s communist government. Lautens, though, argues that there hasn’t been a history of that in China. “We purposely didn’t go into China until certain things were in place. Part of that was the transparency of the actual mining regulation process, (including) the licensing and permitting,” he added, claiming that transparency happened in 2003 when the country’s gold mining industry became eligible for foreign investment.
Lautens asserted that traditional Chinese gold mining has concentrated on free milling gold – “it’s cheap, easy to extract, and requires low technology.” Inter-Citic’s sulphide deposit is a “little trickier” in terms of extraction, and more of a delayed gratification, as well as being more capital intensive as far as the Chinese are concerned. It is for this reason that in 2004, when company became involved in the project, the Chinese weren’t interested in a deposit like Dachang. Now, given China’s surplus of capital and desire to boost its gold reserves, Lautens believes they are much more likely to be partnered with a Chinese gold producer – “probably in the near term.”
Lautens gave the example of a Venture-listed company, Continental Minerals (TSX: V.KMK, Stock Forum), which has partnered successfully with China’s Jinchuan Group since 2007 to develop the Xietongmen Copper-Gold Project in the Tibet Autonomous Region. During the past year Continental’s share price has soared more than four fold. Lautens contends that Jinchuan paid “over market” for a minority stake and are playing by Toronto Stock Exchange rules.
Indeed, Inter-Citic Minerals could be a takeover target as Catherine Gignac points to Eldorado Gold’s (TSX: T.ELD, Stock Forum) recently-completed $2 billion acquisition of Sino Gold Mining as an example of a possible increase in M&A activity in the region. Regardless, Inter-Citic has to use its approximately $8 million in cash to continue to drill and expand its resource in order to justify a further rise in its stock price.
For more insight into the Inter-Citic story, please read Thom Calandra’s column. The stock has been a Ticker Trax Planetary Prospect since first being recommended at 70 cents a share.