ATAC Resources Ltd (fka ATADF) (ATADF)

[~Nautical~]

$ATADF

According to Macquarie Research:

https://www.docdroid.net/NCAdvXH

April 11, 2017

ATAC Resources

Rating: Outperform

12-month target: C$ 0.70

12-month TSR %: +66.7

Target up & upgrade to Outperform on Barrick JV

Event

- On Apr/10, after market open, ATC announced an equity earn-in deal with Barrick Gold (ABX CN, C$25.64, Outperform, TP: C$28.00, Michael Siperco) to earn up to 70%, by spending C$55m (two option stages), on the middle ~45% of its Rackla Gold Belt, Yukon, Canada. ABX also made a private placement of C$8.3m, increasing its ATC interest to 19.9%. Appendix A for key deal terms.

Impact

- We like the ABX deal for a number of reasons as follows.

- The ABX validation of the Rackla Gold Belt is huge. For any Doubting Thomas’ out there that questioned whether ATC had a bona fide Canadian Carlin gold setting, that question has been put to rest. We see Tier One +20moz potential in the belt as a key reason ABX has made the deal.

- It brings the project full time “in the field” Carlin expertise for the first time. We think insights that ABX personnel will bring to bear, including VP NA Discoveries, Kevin Creel, could be key to unlocking new targets and assessing the Orion JV. We also think the ABX toolkit will accelerate the discovery process including potentially using regional sampling for thermochronology to vector into the “Carlin temperature window”.

- Only the middle 780sq km of the Rackla Gold Belt subject to earn-in option (45% of belt). ATC maintains 100% of the resource potential at Conrad/Osiris & the Rau Trend. This allows ATC to create value through the drill bit on its 100% controlled areas & we expect C$10m deployed in 2017. We expect ABX to spend C$3m in the earn-in’s first year & focus on the permissive Paleozoic host rocks at the Orion & Anubis cluster of gold occurrences.

- The first strategic investment by ABX in a long time brings more focus on ATC. We note that explorers with strategic investments tend to perform well in the subsequent 12mo period after the investment by a senior [LINK].

- Now valued on a single case Sum-of-Parts NAV (prev scenario probability weighted) – impact -C$0.07 NAVPS. We value a 1mozAu potential Conrad resource at US$50/oz & Tiger on a DCF basis & three land package sections (Osiris/Rau/Orion JV) on an EV/ha basis. Given ABX’s Orion JV interest we value it at $1000/ha, with the other properties at $600/oz - Fig 2 for NAV build-up.

Earnings and target price revision

- 2017E EPS now -1c (was -2c). Target price increased to C$0.70 (was C$0.60) on target price multiple increase to 0.5x (was 0.4x) via strategic validation.

Price catalyst

- 12-month price target: C$0.70 based on a Sum of Parts methodology.

- Catalyst: Drilling results (mid 2017)

Action and recommendation

- We have upgraded ATC to an Outperform (was Neutral) and have increased our target price from C$0.70 (was C$0.60).
Read more at http://www.stockhouse.com/companies/bullboard?symbol=v.atc&postid=26141090#4lAKtrDcgT0vQTpE.99