What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Adelaide Resources (ASX: ADN)
Adelaide Resources is currently advancing exploration at the Alford West prospect within the Moonta project area.
Broad widths of high grade copper and gold mineralisation have been intersected at shallow depths, highlighting the prospectivity of this target.
Follow up drilling is now underway and with only 10 per cent of the anomaly drill tested, significant opportunity exists for further high grade results.
Adelaide has an EV of $13.2 million and is highly leveraged to exploration success.
In a market where exploration companies are receiving little attention, Adelaide Resources (ASX: ADN) stands out as delivering material exploration results with all the hallmarks of discovering a significant copper/gold deposit.
Adelaide’s recent focus has been on the Moonta region which has a rich history of mining with an estimated 355,000 tonnes of copper and approx. two tonnes of gold extracted by the old-timers.
Some of the world’s more significant mining houses have since undertaken extensive exploration in the area looking for major copper/gold deposits, and while unsuccessful in this endeavour, numerous high priority (smaller) prospects where identified.
Adelaide Resources has an extensive exploration data base from the early explorers and is undertaking shallow drilling campaigns to test the historical prospects.
The most exciting of these prospects is Alford West where the company’s first drill program recently intersected 20m at 4.2 per cent copper and 0.27g/t gold from 32m and 45m at 1.55 per cent copper and 1.81g/t gold from 15m, with mineralisation present to the end of the hole.
Breakaway is highly encouraged by these high grade shallow intercepts, and the fact that every traverse of the Alford West drilling campaign has intercepted ‘ore grade’ copper/gold mineralisation.
With only 10 per cent of a three kilometre geochemical anomaly now drilled, significant opportunity exists along strike and at depth to establish a significant ore body.
Breakaway recommends Adelaide as one of the better explorers with early but promising results.
Recommendation: Speculative BUY
Cabral Resources (ASX: CBS)
Cabral expanded its footprint in the Sincora area to approximately 1,195 square kilometres with the lodgement of sixteen new tenement applications lifting its total landholding in Brazil to 1,782sqkm.
Low-contaminant, high-grade direct shipping ore (DSO) hematite iron occurrences have been identified in the newly-named Queixada and Coral Zones from assays of surface samples, raising the prospect of near-term production and cash flow generation.
Queixada and Coral Zones – positive assay samples
Exploration work at the recently pegged Sincora Area has identified a new high-grade hematite zone to the north along the Tombador formation, namely the Coral Zone; and additional new high-grade DSO hematite iron ore occurrences at the central zone, named Queixada, which now spans an area of 3km by 2km.
Dual infrastructure option available
Cabral’s Sincora Area is well situated to the currently operating FCA rail line, which passes directly within the tenement holding en route to Port of Aratu on the coast near Salvador.
Sincora is also in close proximity to the FIOL rail development, 30km away, which is scheduled for completion in 2015/16.
Valuation: Focusing on DSO hematite
Cabral’s shares are currently trading at 2.3 cents per share which equates to an enterprise value of $0.12 million, based on cash of $6m (2.4 cents per share) as at 31 March 2013.
This compares with a net asset value (NAV) per share of 7.9 cents, based on financials reported for the interim period end December 2012.
Although a JORC-compliant resource has yet to be reported, Cabral is well positioned in terms of proximity to existing and planned infrastructure.
Initial surface samples now from two sites on the newly pegged Sincora Area augur well for the potential delineation of a high-grade DSO hematite resource.
Using a subgroup of peers focused on DSO hematite generates an average EV/t multiple approaching 12 cents per tonne, which, when applied to our three hypothetical resource scenarios, generates an implied share price for Cabral of between 5 cents and 7 cents.
Venturex Resources (ASX: VXR)
Venturex Resources has validated its recent strategy change to focus on exploration in 2013 with positive results from Kangaroo Caves.
This confirms that exploration upside may provide further Reserve scale as part of the ongoing assessment of the feasibility study.
VXR remains highly leveraged to exploration success.
Kangaroo Caves drilling results validate exploration strategy: A shift of strategic focus towards exploration in 2013 has yielded positive results from Kangaroo Caves (KC) with the extension of copper and zinc mineralisation.
KC provides upside for a future revision of the Sulphur Springs (SS) feasibility study given its proximity to SS and the improving grade trend.
Grades of up to 4 per cent copper and 9.3 per cent zinc have been defined within discrete zones and structural offsets which present an opportunity to identify additional mineralisation.
Key results include:
• KRC007 6m at 0.6 per cent copper, 9.3 per cent zinc, 7.3g/t silver from 137m from 154m;
• KRC007 4m at 2.6 per cent copper, 0.8 per cent zinc, 2.8 g/t silver, 0.02 g/t gold from 165m; and
• KRC008 5m at 4.0 per cent copper, 0.2 per cent zinc, 3.3g/t silver, 0.01 g/t gold from 143m.
$4 million earmarked for exploration in 2013: Proceeds of the current $6.4 million capital raising (together with current $2.2 million cash) will be weighted towards brownfields and greenfields exploration at both SS and Whim Creek (WC).
This forms part of the enhancement program to increase the modest Resource/Reserve base that underpinned the 2012 feasibility study.
VXR has identified near-term targets which include geophysical targets at Liberty Indee, Salt Creek and additional exploration at KC.
Enhancing the feasibility study: The study provided a ‘base case’ for a production scenario moving forward.
Argonaut’s valuation confirms that increasing the current mine life beyond approx. 8.5 years (based on a one million tonnes per annum operation) is a key lever to NPV accretion.
Whilst SS is the current ‘centre of gravity’ based on existing Reserves, new discoveries at SS or WC may change this outcome.
Brazil exploration remains measured, without being a distraction: Whilst VXR’s Brazilian gold exploration projects offer a second angle for VXR’s strategy, exploration will be limited in 2013 with a budget allocation of around $200,000.
The assets offer strategic appeal and joint venture partners are being sought to continue exploration.
Recommendation: Speculative buy maintained.
Argonaut’s valuation has been reduced to 3.5c (was 4.5c) based on a pre-production peer average EV/Resource pound metric of US3.1 cents per pound.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.