The Gold Report - Thu, Mar 28, 2018

Gold E&D Firm's Stock 'Very Attractive at This Level,' Analyst Says

Tom Gallo, an analyst with Canaccord Genuity, makes the case for investing in this company with a "top-tier" mine in Northern Ireland.

Gold exploration

A March 26 research note indicated Canaccord Genuity transferred primary coverage of Dalradian Resources Inc. (DNA:TSX) to Tom Gallo from Eric Zaunscherb. "Our view remains that the company's wholly owned Curraghinalt project, one of the highest grade, undeveloped gold projects globally, is a top-tier development asset despite recent headwinds," analyst Gallo clarified. Curraghinalt is located in Northern Ireland.

Gallo reiterated Canaccord Genuity's Speculative Buy rating and CA$2.50 per share price target on Dalradian. The latter reflects a more than doubling of the current stock price, which is about CA$0.95 per share and "very attractive at this level," Gallo added.

Year to date, Dalradian's stock price is down 22% due to two primary reasons, Gallo speculated. One is uncertainty around Brexit, specifically "what the border between Northern Ireland and the Republic of Ireland would look like, which we view as more of a muddying of the waters than an actual impediment to project advancement."

The other is "a very small group" of people protesting construction of the Curraghinalt mine, citing toxic cyanic damage to the local environment, and thereby leading investors to question whether or not Dalradian will be able to obtain necessary project permitting. Though the "movement has drummed up sporadic government support," specifically that of Sinn Féin, Gallo wrote, "we remain of the view that an operating mine in the community providing an economic benefit to many will outweigh concerns raised by a select few" and "the current choppiness surrounding this process will have presented investors with a very attractive entry point."

Despite the overhang on the stock, some major events are on the horizon and would likely catalyze upward movement in the price, according to the report. An updated resource estimate is expected by the end of Q2/18 and a subsequent updated feasibility study in Q3/18. "The feasibility study could increase the overall reserve base while exploring several optimization techniques including dilution management with ore sorting, which could reduce mining costs," Gallo noted.

Also anticipated is Dalradian receiving a final permit decision for Curraghinalt, "a major derisking event," likely in H2/19, said Gallo. Production ramp-up then could likely follow in late 2020.

In the interim, Dalradian continues to strengthen its balance sheet, having ended 2017 with CA$138M in cash. The company would likely fund the remaining $262M in capex for Curraghinalt via a combination of working capital, equity and debt," Gallo estimated.

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