(MENAFN- ProactiveInvestors - N.America) Treasury Metals (TSE:TML) has received a bullish recommendation from Euro Pacific Canada, with the brokerage firm initiating coverage on the gold development company with a speculative buy rating and a 12-month price target that is some 63 percent more than the price at which it currently changes hands.
Analyst Ryan Walker, in a note sent to clients on Monday, highlighted the company's 100 percent owned 1.7 million ounce gold-equivalent Goliath gold project near Dryden in northwestern Ontario, amid what he called "a slew of multi-billion dollar writedowns and a continued challenging capital market for junior miners."
An updated preliminary economic assessment released in July 2012 on the project outlined a combined open pit and underground operation producing an annual average of 80,000 ounces of gold equivalent over 10 years. Life-of-mine cash costs were forecast at $698 per ounce, while initial capex was pegged at a "modest" $92.5 million, with another $108 million in subsequent underground development and sustaining capex, the analyst wrote.
While Walker's cost estimates are slightly higher than forecast in the PEA, he says that "the modest capital costs, which reflect the proposed mine's staged development, ample on-site and surrounding infrastructure, ease of access, and small footprint, should be attainable by Treasury."
He also noted the ample local infrastucture in the Goliath gold project area, situated as it is just 20 km east of Dryden. The project is immediately accessible via paved roads 2km north of the Trans-Canada highway, while both a TransCanada natural gas pipeline and electrical power lines cross the property. In addition, a CP Railway line parallels the highway.
There is plenty of on-site infrastructure too, with several offices and warehouses from a former Ministry of Natural Resources tree nursery, helping to de-risk the project and providing a head start on development, Walker said.
Perhaps most important is the company's near-term production potential, with output forecast by management to start up in the second quarter of 2016, with plans for staged development. Initially, an open pit operation would supply mill feed for up to 4.5 years, with lower grade material stockpiled for later processing.
Underground development would begin early in the second year of operation, which would be funded by internal cash flow, with production to begin in the third year, supplemented by the stockpile and lasting approximately eight years.
Last but certainly not least, Walker says Treasury's Goliath project is bolstered by exploration potential. The company's recent exploration efforts have focused on the C Zone, which parallels the main mineralized zone at the site, some 30 to 50 metres to the south.
"Importantly, the C Zone has the potential to increase in-pit resources and reduce the overall strip ratio," Walker highlighted.
"Drilling has also encountered a new zone of mineralization ~400m west of the main resource, highlighted by 12.8m (from 67.15m down hole) at 2.71g/t gold, across the interpreted Main Zone stratigraphy."
The new area, which could be the western extension of the main zone, remains open in all directions, and represents the potential for shallow, open pittable resources, the analyst said. On a broader scale, several electromagnetic targets on the property are also being evaluated through soil sampling ahead of potential drill testing.
Upcoming catalysts for the company include an updated resource estimate in the third quarter, with some 40,000 metres of drilling completed since the last update in late 2011, as well as the submission of its environmental impact statement in the same period.
A prefeasibility study is expected as early as the final quarter of this year, while a bankable feasibility study is on track for the first half of 2015. Environmental approvals and provincial permitting are expected sometime in the second half of next year.
Walker's 12-month price target of 70 cents is based on a discounted cash flow model of the Goliath project, which yields a net present value of $128 million based on a 5 percent discount rate. The analyst's model assumes start up in the first quarter of 2017.
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