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Update from TD Securities @ May 16th

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MemoryLeaks   Monday, 05/20/19 08:22:49 AM
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Update from TD Securities @ May 16th

Continental Gold Inc.
(CNL-T) C$2.66
New BMZ4 Drill Results; Updated Mine Plan in H2/19

Event This morning, Continental Gold reported high-grade results from the initial 12 holes drilled into BMZ4, a new discovery located in the eastern-most part of the Yaraguá system, at its Buritica gold project (100%) in Colombia. First gold pour is expected by the company in H1/20.

¦ Highlights: BUSY407 — 10.17 g/t Au over 12.3m; BUSY409 — 7.03 g/t Au over 15.5m; and BUSY411 — 18.69 g/t Au over 5.65m
¦ BMZ4, which is located approximately 60 metres east of BMZ2 in the eastern portion of the Yaraguá system, has been intersected by drilling for more than 200 vertical metres and measures between 25–45 metres in thickness.
¦ BMZ4 remains open at depth with extension drilling currently underway. Three diamond drill rigs are actively turning on this new discovery.
¦ The company's 2019 drilling focus is to define the broad mineralized zones identified to date ahead of planned production in 2020. Recall, the company plans to drill up to 73.5 km (55 km of capitalized definition drilling and 18.5 km of infill drilling) in 2019.
¦ In terms of its critical path, Buritica is approximately 57% complete (as at March 31). Underground development continues to advance ahead of schedule (3.4 km remaining) and is ~76% complete (55% as at December 31).
¦ As a reminder, on January 30, the company released an updated resource estimate, which, in our view, revealed strong growth in overall resources to more than 11 Moz at 9.3 g/t (M&I: 5.3 Moz at 10.3 g/t).
¦ The updated resource outlined significant tonnage within the BMZs, equivalent to more than two years of mining, which we believe may mitigate ramp-up and mining rate risk that is a significant issue for narrow vein gold systems such as Buritica.
¦ An updated reserve estimate and mine plan are expected from the company in late 2019 (reserves currently stand at 3.7 Moz at 8.4 g/t). TD Investment Conclusion We believe that Buritica stands as one of the largest and highest grade, independently owned, in-construction gold projects in the world. We expect the stock to re-rate progressively higher as the company continues to advance the project.

Recommendation: SPEC BUY
Risk: SPECULATIVE 12-Month
Target Price: C$5.00
12-Month Dividend (Est.): C$0.00
12-Month Total Return: 88.0%

February 2016 FS - Updated as per Recent Company Presentation
? At $1,267/oz Au, the NAV5% of the project is estimated at $855mm and the after-tax IRR at 27%, which we regard as robust.
? Production is forecast at 253 koz/year (282 koz/year over the first five years) at AISC of $600/oz. Pre-production capital expenditures are estimated at $512mm.

Balance Sheet
? As at March 31, the company had ~$185mm of available liquidity (consisting of ~$85mm of cash and $100mm from the Streaming Agreement).

We have updated our model to reflect the Q1/19 financial results. Net of these and other minor changes, our corporate NAV5% increases to C$4.65/share (from C$4.50/share).

We calculate that Continental is currently trading at 0.57x our corporate NAV5%. This is below its closest peer, Lundin Gold (LUG-T), which is trading at 0.80x NAV5%.
Exhibit 2. P/NAV Comparison

Justification of Target Price
We generate our target price by applying a 1.1x multiple to our corporate NAV5%, calculated at a long-term gold price of $1,300/oz. We believe that our multiple is reasonable for what we characterize as one of the largest and highest grade, independently owned, in-construction gold projects in the world.

Key Risks to Target Price Key risks to target price include: Gold, silver, and fuel price risks; foreign exchange rate risk; forecasting risk relating to deposit size; financial and market risks; technical risk; risk related to the cost and availability of financing; capital and operating cost risks; timing risk; political risk, including risks related to indigenous people; permitting risk; environmental risk, including earthquake and landslide risks; title risk and risks related to the acquisition of surface rights; illegal mining risk; and staffing and key personnel retention risks.

Source: TD Securities Inc.

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