TABLE POUNDER!!! ADA.v/ ADGLF.pk I am convinced this is the real thing and will be in production by March/April 07.
Cashflow predictions are C$.40 to .57 using reasonable prices for zinc and lead. C$2 zinc sends cashflow to .70. Closed Friday at C$1.24.
Also notice they have 500,000+oz of Measured and Indicated Resources of GOLD, 826,000+ oz of Inferred.
Bobwins
Cheap Zinc Player on Cusp of Production
By David J. DesLauriers
10 Jan 2007 at 05:58 PM EST
TORONTO (ResourceInvestor.com) -- Acadian Gold Corp. [TSXv:ADA], which closed today at C$1.11, should recommend a name change at its next AGM, because this astute company quietly collared a zinc cash cow about one year ago. Management reached an agreement to acquire the Scotia Zinc property, which, starting at the end of March, is slated to start throwing off major cash flows.
We think that given the fundamentals, peer valuations and the fact that the company is on the verge of joining the dearth of listed zinc producers, ADA could be a fairly easy double between now and the end of the first quarter - and deliver further gains as quarterly numbers are released and the market comes to understand Acadian’s growth profile and the hidden value within the company.
Property & Cash Flows
Acadian Gold announced on July 6, 2006 that it had completed the acquisition of 100% of the outstanding shares of ScoZinc Limited from HudBay Minerals Inc. [TSX:HMB] ScoZinc's principal assets are a modern mill facility and zinc-lead deposits collectively known as the Scotia Mine, located at Gay’s River, Nova Scotia, Canada.
In addition, in July 2006, Acadian announced that it had completed a full feasibility study on the property, highlights of which are available here. The full technical report is also available on SEDAR.
What has been confusing the market somewhat is that the numbers press-released as cash flow are actually net earnings figures after taxes and after a royalty payout, which the company in reality has the option to, and intends to, buy out before production begins at the end of Q1.
In fact, at $1.50 zinc and 70 cent lead, and according to the cost numbers and smelter charges outlined in the feasibility study, Acadian should cash flow about 40 cents per share on its 105 million shares outstanding.
There are a lot of zinc enthusiasts who believe that the metal has the best supply-demand situation in the base metals complex, and that prices will average $2 in 2007- some have even predicted a spike to the $2.50/lb level. While prices took a hit last week and early this week, down from $1.90 per pound, to $1.60 alongside copper, a rebound to $1.74 has already taken place, and many analysts are forecasting strength going forward as fundamentals trump technical selling.
Indeed, to give an example of the leverage, if prices average $2 zinc and 70c lead, ADA would cash flow about $60 million or 57c per share.
Base metal companies typically trade at 4 or 5 times cash flow and ADA should match that because they have at least 10 years of mine life (including the neighbouring Getty deposit), with a mine located in the safety of Canada, producing a metal that could become the hot commodity again soon – but most importantly, they have a robust growth profile!
Given the equipment inherited by Acadian at Gay’s River in the ScoZinc acquisition, we believe that ADA has the ability to increase production by 25% over the levels envisioned in the feasibility study (linked above), by the end of 2007, or early 2008.
If that were to occur, the company could produce cash flows of about $55 million at $1.50 zinc and 70 cent lead, and around $75 million at $2 zinc and 70 cent lead. This growth profile would boost cash flow per share numbers in the former case (at $1.50 zinc) to 52 cents per share, and to over 70 cents per share cash flow in the latter case ($2 per pound zinc).
Given this growth potential and the outlook for zinc prices, we believe that a C$3 target on Acadian based on a cash flow multiple of 5X is perfectly reasonable as quarterly numbers begin to be released.
But there is still more to this story.
Hidden Value
This report does not factor in any value for the 1.4 million ounces of gold across all 43-101 categories that Acadian has developed in Nova Scotia – and which will likely be developed from zinc cash flows, with little or no dilution to shareholders. At some point this value will be unlocked and could easily be worth 50 cents or C$1 per share, depending on the stage of development.
This report also does not factor in any value for ADA’s 51% stake in Royal Roads Corp. [TSXv:RRO]. That stake is currently worth about C$12 million, but when one looks at what Royal Roads is doing, and the fact that their high tonnage value polymetallic discovery in Newfoundland is equivalent to a gold resource of about 1 million ounces, and growing, this stake could be worth a lot more. RRO is currently undertaking a scoping study, and with mineralization starting at surface, as well as a mill in the area, this could become very interesting, very quickly.
There is no doubt that Acadian’s hidden assets will be unlocked at some point, and the cash flows generated from zinc production will foster their development, rewarding shareholders without dilution. This is a major plus that could be worth an extra C$1 or more per share, and that investors should keep in the back of their minds.
Catalysts
The only two things that now stand between Acadian and commercial zinc production are a $15 million debt financing which is currently being arranged, and which the company believes can be completed with negligible or zero dilution and no hedging commitments, and an Industrial Approval Permit (much less complicated than a mining permit) from the Nova Scotian provincial government.
We estimate that by the end of January, Acadian will be able to check off these two boxes, and at that point, just a few weeks from cash flow, we think that an appropriate valuation for the company could be C$1.50 per share.
By the end of March, Acadian should be commencing production and feeding the mill, at which point we believe that the company should reasonably command a valuation of around C$2 per share.
As quarterly production and cash flow numbers are delivered, and as the market sees Acadian’s growth profile start to take shape, we envision a C$3 share price, probably in and around Q4 of this year which would then put ADA in line with peer cash flow multiples.
Conclusion
Acadian is poised to soon join the slim ranks of Canadian listed zinc producers. The company will boast production from the safety of Canada, an attractive growth profile, and considerable ‘hidden’ value.
All things considered, it appears that for short-term investors and longer-term investors alike, there are a number of catalysts that should take shares from their current price of C$1.11 to first the C$1.50 level by the end of the month, and then to C$2 before the end of this first quarter.
This could make ADA a very easy double in short order. As quarterly cash flow numbers are then released and growth potential recognized, we think that Acadian ought to be a C$3 stock, or a triple from current levels well before year-end, to put the company in line with peer valuations.
From that point, the unlocking and development by ADA (out of cash flow) of their 1.4 million ounce gold resource in Nova Scotia, and their high-tonnage value, near surface, growing polymetallic deposit in Newfoundland could well further enhance the return for shareholders.
Indeed, whether one believes that zinc will be $1.50, or will head directly back to $2, or even to $2.50 per pound under demand pressure and a supply deficit, ADA is one of those straightforward investments in which the numbers are all in front of the investor, and not much has to be done but to let the catalysts play out.
As they do, very attractive triple-digit returns over a short time period are the likely result.
