What the Brokers Say – Issue 83

WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.

Alligator Energy (ASX: AGE)

Alligator Energy (ASX: AGE) is a cashed-up, aggressive uranium exploration company with a large strategic acreage position in one of the world’s best uranium provinces, the Northern Territory’s Alligator Rivers region.

Alligator has conducted extensive drill programs over its project area, with a total of 10,991 metres of drilling completed during 2012.

Results to date justify a more systematic drill out of the Caramal deposit area during 2013, which will likely lead to a revised and upgraded Resource estimate.

Through the purchase of the Tin Camp Creek Project from Cameco and exploration licence applications covering favorable geology and structure, Alligator has secured a prospective land holding in the region and a pipeline of quality projects.

The company holds 283 square kilometres under three granted tenements and 1,025sqkm under 15 tenement applications.

With $4.8 million cash on hand, the company is able to aggressively explore its acreage.

During April 2012 the company’s aggressive exploration program paid off, with the announcement of a maiden JORC-compliant resource estimate for its primary Caramal deposit comprising 944,000 tonnes at 0.31 per cent uranium for 6.5 million pounds uranium (at a 0.1 per cent uranium cut-off), located within its Tin Camp project area.

The results from drilling during late 2012 at Caramal point to a likely sizeable upgrade in the resource base.

Alongside the Athabasca Basin in Canada, the Alligator Rivers province ranks as one of the world’s premier uranium addresses in terms of hosting large, high-grade deposits.

In fact the province hosts nearly 1 billion pounds of high-grade uranium resources and past production, including the operating Ranger mine and the nearby Jabiluka deposit.

The Alligator River region however has had significantly less exploration attention than the geologically-similar Athabasca Basin, which continues to produce new discoveries.

Therefore the prospect of further significant discoveries within the ARUP should be considered extremely good.

Alligator purchased its flagship Tin Camp Creek tenements from established uranium producer, Cameco Australia, a subsidiary of Canada’s Cameco.

The project contained advanced drilling targets, both to extend and validate known zones of uranium mineralisation, as well to allow systematic exploration of prospects that have untested radiometric anomalies and/or limited previous drilling.

High-grade uranium mineralisation had previously been intersected at numerous prospects on Alligator’s granted tenements, including the historic Caramal deposit. Some of the best high-grade intersections included 21m at 0.5 per cent uranium and 22.7m at 0.38 per cent uranium at Caramal, 15m at 0.47 per cent uranium at South Horn and 15m at 0.19 per cent uranium at Gorrunghar.

Apart from its geological prospectivity and strong mining history, the other key factor that makes the Northern Territory the place to be from a uranium perspective is the fact that the Northern Territory Government actively encourages uranium exploration and project development.

Recommendation: Speculative BUY

 

Manas Resources (ASX: MSR)

We like Manas Resources (ASX: MSR) because it’s a near-term, potentially very low cost gold producer that could bank plus US$100 million over 5 years, even at US$1100 per ounce gold from 2016.

We expect some of this short, sharp injection of cash to find its way into exploration of MSR’s large and highly prospective tenement package in south-western Kyrgyzstan.

Price catalysts for 2013 could include final permitting, funding and start of construction at Shambesai.

Further exploration success is a good possibility.

Manas Resources is an Australian‐based company focused on exploring and developing its 100 per cent‐owned gold projects in south-western Kyrgyzstan.

The company has a Mineral Resource base of 1.25 million ounces of gold at the Shambesai and Obdilla prospects.

A feasibility study has been completed for Shambesai.

MSR received a Mining and Development Licence for the project in late 2012. Gold production (245koz Au over 4.5 years) is expected to commence in 2014.

We consider MSR to be a very attractive if Speculative investment for several reasons:

Low cost, near term gold production: Shambesai could produce at least 245,000 ounces of gold (Probable Reserve) at an average C1 cash cost of $411 per ounce via open cut mining and vat/heap leaching

This would make MSR a lowest-cost-quartile producer. CAPEX to first gold is a very modest US$32.6 million.

Strong cash flow: we estimate that net cash flow from the project over 4.5 years (late 2014 to early 2019), including taxes and capital cost repayment, will be US$107 million (gold) US$1100 per ounce LT; this increases to US$151 million at US$1600 per ounce.

At NPV, the IRR is 80 per cent. MSR’s market cap is currently less than $30 million so the potential value-add is considerable.

High exploration potential: MSR’s 100 per cent-owned South West Kyrgyz gold project covers 3,500sqkm of the Tien Shan gold belt, which hosts the 17 million ounce Kumtor in Kyrgyzstan and the plus 100 million ounce gold Muruntau in Kazakhstan.

There approx. 54 prospects divided among nine projects, most of which have barely been tested.

The prospectivity of this ground is hard to overstate. Discovery costs to date have been $16 per ounce.

Experienced operators:
we are comfortable with Management’s ability to deliver Shambesai and grow MSR’s resource base.

The Board includes representatives of parent company and mid-cap gold miner Perseus Mining (ASX: PRU).

The recent appointment to non-exec of Papillion Resources (ASX: PIR) managing director Mark Connelly (ex Adamus/Endeavour) is a very encouraging sign.

Valuation
Our 12-month share price target for MSR is $0.25/sh, with a recommendation of BUY (Speculative).

This is based on a DCF analysis of the Shambesai Gold Mine (245,000 ounces), an EV/resource valuation of gold not included in the Shambesai feasibility study (1 million ounces) and a nominal amount for further exploration (10 per cent).