Ramelius takeover offer puts spotlight on other ‘under-valued’ gold stocks
14th September 2018
Resources Rising Stars
This week’s $59 million hostile takeover bid by Ramelius Resources for fellow WA gold group Explaurum has set tongues wagging about the potential valuations of other emerging producers.
Paterson analyst Xavier Braud said in a research note that the offer highlighted the upside in another WA explorer, Breaker Resources.
Braud said Ramelius’ offer was equal to an enterprise value of $75 per resource ounce based on Explaurum’s resource inventory of 675,000oz.
This compares with Breaker’s valuation of $39 per resource ounce based on its recently-announced resource of 1.08Moz.
“This transaction shows that at the current 32c-a-share, Breaker “in-the-ground” ounces seem undervalued,” Braud said in his note.
“We currently have a speculative buy recommendation on Breaker and we can certainly see some upside in the stock.”
Breaker announced last week that resources at the Bombora gold deposit within its Lake Roe project had increased 74 per cent to 24.6Mt at 1.4gpt for 1,084,000oz.
It also set an exploration of a further 1.2Moz to 1.4Moz to a depth of 450m below the resource.
Bell Potter senior resources analyst David Coates also sees substantial upside in Breaker shares.
“It’s the most compelling greenfields discovery in the market,” Mr Coates said, adding that the deposit’s location, grade, proximity to surface, size and growth potential would put it on the radar of bigger players.
Bell Potter has a speculative buy rating on the stock and a price target of 92¢. The stock was trading at 33c yesterday.
Breaker said a pre-feasibility study was already underway to assess the viability of a standalone open pit mining operation and that it also planned to assess the underground potential.
“Early open pit optimisation studies completed at a gold price of A$1650/oz indicate reasonable prospects for eventual economic extraction,” Breaker said.
Breaker Executive Chairman Tom Sanders said the rapid growth in the Bombora Resource over the past five months reflected both the success of its recent drilling and important breakthroughs in its understanding of the geological controls on the mineralisation.
“This is a pivotal moment for the company,” Mr Sanders said. “Not only have we achieved our previous Exploration Target of 1.1 to 1.3Moz just five months after announcing it, we have also mapped out a clear pathway for Breaker to materialise the value of this exciting discovery for our shareholders.
“With a much clearer picture of the mineralisation controls to hand, we are now finding a lot more gold, more quickly. This is unmistakably reflected in the improving discovery cost of $18/oz compared to $23/oz for the maiden resource in April.
“We now have multiple avenues to continue growing the resource – along strike, at depth and regionally – and we intend to keep pursuing this opportunity with an aggressive drilling program using three to four rigs.
“The most immediate opportunity exists at depth below 250m, where the presence of continuous high-grade gold mineralisation in both steep and flat orientations provides an obvious focus for drilling. This is reflected in our updated Exploration Target for the project.”
Image: Ramelius Resources
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