GE&CR says 'buy' Vatukoula Gold Mines, price target 3.9p
Growth Equity and Company Research (GE&CR) issued a buy recommendation for Fiji operating gold explorer Vatukoula Gold Mines (AIM: VGM), with a target price of 3.9p per share. According to GE&CR Analyst Thomas Jones the emerging gold company is materially undervalued.
The company’s 100% owned and operated Vatukoula gold mine in Fiji has a NI43-101 compliant resource of 4.2 million ounces with a 40 year mine-life. The company acquired the Vatukoula gold mine in April 2008 and has since re-established mining operations. The mine operated for over 75 years, producing approximately 6.9 million ounces of gold.
"Unhedged and targeting an increase in annualised gold production from the current 48,000 ounces to 100,000 in the first calendar quarter of 2011, Vatukoula is a geared play on a rising gold price but looks materially undervalued even at current levels”, Thomas Jones commented, “Realistic upside to our valuation comes from higher long-term output, higher gold prices - using an $1100 gold price our valuation increases to 5.8p - and the compression of operating costs.”
The analyst’s model is based on Vatukoula’s targeted production of 100,000 ounces in FY2011 and 110,000 ounces from FY2012 onwards. GE&CR also assumes a flat gold price of $950 per ounce.
Last week Vatukoula announced the results of an independent assessment of its mineral reserves and mineral resources carried out by AMC Consultants, who confirmed the “world class size and scale” of the Vatukoula ore deposit. The assessment put the company’s proven and probable mineral reserves at 1.9 Mt (million tonnes) of ore grading 10.9 g/t (grammes per tonne) of gold for 0.68 Moz (million ounces), based on a gold price of US$750/oz and projected operating costs of US$107 per tonne of ore, which could increase about 20% if the assumed price were raised to to US$1,050/oz.
The underground combined measured and indicated resource is at 8.3 Mt (million tonnes) grading 10.5 g/t of gold for 2.8 Moz, while the inferred mineral resource amounts to 4.7 Mt grading 8.6 g/t for 1.3 Moz. Tailings based combined measured and indicated mineral resource now stands at 5.2 Mt grading 1.5 g/t for 0.23 Moz of gold. |