well what do you guys think of this??????
06-Mar-2019
De Grey Mining Ltd
Setting the Table for a Takeout
We believe De Grey is worth A$0.30/share based on our initial NAVPS estimate of A$0.44/share and a multiple of 0.70x. In our view, De Grey is one of the few development companies with a path to produce plus 100koz/year, have exceptional exploration upside in +200km of shear zones and trading at a steep discount to its peer group.
We believe that the Pilbara Gold Project is of a scale and has the exploration upside that we believe makes De Grey an attractive target for mid-tier producers.
Investment Thesis:
- Already +100k/year potential. We believe that with a planned throughput of 2Mtpa (~5,500tpd) De Grey would produce 143koz per year at cash costs of US$621/oz for initial capex of US$98M. Our estimates assume production starts in CY2022E and includes production from multiple deposits, with 59% from open-pits and 41% from underground.
- Room to grow, a lot. The company’s 1.4Moz resource is spread over 5 main deposits (12 total). Drilling has focused on growing these deposits near surface; however, most remain open along strike and all are open at depth. De Grey believes the resource could grow to over 3Moz and with +200km of favourable structure, of which less than 10% has been properly tested with RC and diamond drilling, we believe this is very possible.
- The right ingredients to be a target. With continued exploration success and project de-risking, De Grey is making itself more attractive. We believe the project is now at a large enough scale to matter to most mid-tier producers and has major exploration upside that potential acquirers look for. KL Gold already owns 9.2% and we believe that other cashed up Aussie mid-tier producers are also potential acquirers (Figure 5).
Valuation:
We expect De Grey to progressively re-rate to our fair value estimate of A$0.30/sh. Our fair value is based on 0.70x our NAVPS
8% estimate of A$0.44. We expect the company to progressively re-rate as it de-risks the +100koz/year production scenario, with engineering and additional studies. As well, we expect that continued exploration success, demonstrating the resource potential of the project to drive the share price higher. In our view, as the company surfaces its potential (both development and exploration), it should become an attractive takeout target for a mid-tier producer.
Upcoming catalysts: 1) Ongoing development updates, 2) Ongoing exploration results, 3) Updated resource (Q4/19) and 4) New economic study (Q1/20).
(20min delay)
