Comments: Last quarter ASX-listed Panoramic Resources (PAN) listed its Gum Creek gold project through the IPO of Horizon Gold (HRN). HRN listed with a coincident capital raising of $15 million for 49% ownership in the new company. We believe, HRN offers a near-term opportunity to realise value in the favourable Australian gold price and cost environment. The project is located in a very prospective part of the West Australian Goldfields. The geology and likely development strategy are similar to that of nearby $225 million Blackham Resources (BLK:ASX). We see considerable exploration upside at the large, relatively untested project already shown to hold 1.3Moz of gold resources. The Wilsons South project hosts some very prospective geophysical targets immediately along strike from the high grade Wilsons deposit. We expect the company to drill here shortly and see the potential for additional discoveries as high. The project has potential for open pit free milling gold production as well as high grade refractory underground production. The free gold processing is expected to be straightforward CIL processing. The March 2016 scoping study completed by PAN on the 700,000oz free gold resource returned an IRR of 30%. A low cost refractory circuit is also considered to process high grade ore from the prospective Wilsons underground resource and would offer considerable upside when combined with free gold processing. The project also hosts an estimated $30 million in sunk costs on existing infrastructure that includes, plant, airstrip, camp, tailings dam and haul roads. This will reduce initial capex to an estimated $55 million. Based on relative valuations against peer’s resources, HRN is deemed undervalued. Our sum-of-the-parts valuation-based price target consists of a combined weighted valuation of an NPV8 valuation and in-situ resource valuation of the company’s 100% ownership of the Gum Creek gold project as well as exploration and cash. Our model assumes an initial low cost 800,000tpa CIL processing plant followed by an additional 400,000tpa moderate pressure oxide leach circuit to produce up to 90,000ozpa over six years. Additional exploration success can be viewed as upside.
HRN Price at posting:
34.0¢ Sentiment: Buy Disclosure: Held
