Pierre Vaillancourt of Macquarie Equities Research has initiated coverage of Roxgold (ROG-V) with an outperform rating and a 12-month target price of $1.50 per share—200% higher than its current trading price of 50¢.
In recent news the junior announced on May 27 that it had received a three-year extension to its 100%-owned Yaramoko exploration permit in southwestern Burkina Faso. Roxgold says the extension gives it more time to expand the project’s high-grade 55 Zone, wrap up economic studies and submit an application to convert the area required for potential future operations to a mining permit. It also enables the company to continue with regional exploration over the permit area, which spans 167 square kilometres.
Roxgold expects to update the resource and complete a preliminary economic assessment in September on the 55 Zone, where indicated resources currently stand at 1.34 million tonnes averaging 15.7 grams gold per tonne for 679,000 ounces of contained gold and inferred resources of 751,000 tonnes grading 8.9 grams gold for 216,000 ounces of contained gold. The resource was based on a 3.0 gram gold per tonne cut-off grade.
Yaramoko is 200 km southwest of the West African nation’s capital of Ouagadougou. It is contiguous to and south of Semafo’s (SMF-T) Mana gold mine concessions in the northeastern part of the Hounde greenstone belt. In addition to the high-grade 55 Zone, Roxgold is testing the recently discovered 109 and 117 Zones and newly identified drill targets at Bagassi South.
Vaillancourt notes that the 55 Zone remains open down-plunge to the east and along strike to the west and that an updated resource and PEA in the third quarter of this year could lead to a feasibility study starting in 2014 and completed in 2015, with production in 2017 or even earlier.
“Although the 55 Zone is small, it is one of the highest grade gold development deposits in the world,” Vaillancourt writes in his 33-page research report. “Development costs are expected to be modest, under $100 million, resulting in favourable economics. Alternatively, the 55 Zone deposit could serve as an acquisition target or a high-grade satellite to the Mana mine, 30 km away.”
Based on the most recent resource estimate, Vaillancourt modeled an underground mine scenario starting in 2017 with a 750-tonne-per-day throughput and life-of-mine production of 1 million oz. over ten years based on a mill head grade of 11 grams gold per tonne to 15 grams gold per tonne.
In addition to Yaramoko, Roxgold has the Bissa West property, about 75 km northwest of Ouagadougou and the Solna property in eastern Burkina Faso, about 375 km east of the capital.
While the company has no operating experience, Vaillancourt says, it does have a “strong team for a small company,” led by chief executive John Dorward, who has held business development and chief financial officer roles in a number of juniors, including Fronteer Gold, which Newmont Mining (NMC-T, NEM-N) acquired. The company also has board “that can build or spell,” Vaillancourt notes, including chairman Oliver Lennox-King “and other members who are as equally experienced in building mines and companies as they are in adding value and selling assets at a premium.”
Vaillancourt notes that Roxgold’s board members “have been instrumental in some of the most successful names on the TSX, including Homestake Mining, Fronteer Gold, MAG Silver, Kinross, Canico, Sutton Resources, Detour Lake, Lac Minerals and Placer Dome.”
Roxgold has 143 million shares outstanding and has traded in a 52-week range of 43¢ and $1.02 per share.
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