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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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From: Proud Deplorable1/15/2008 3:28:49 PM
   of 78420
 
From Dundee’s latest Gold Sector Update report dated 1/10/08 they include two small peices on Ecuador/ARU. They kept the ARU target price unchanged at $14. Dundee first initiated coverage of ARU on May 3, 2006 when the price was CDN$3.60 pre-split.

For companies with Ecuadorian assets, there is added uncertainty reflecting the recent passage of a 70% windfall tax on revenue above a set level. It is believed that windfall tax would be deductible from income tax; however, there is little certainty at the moment. The tax was thought to pertain to the oil and gas industry, but wording in the newly passed act suggests it is applicable to non-renewable resources, which would include mining. Government discussions have begun with mining companies and it is possible that agreements may be reached that circum-navigate the new tax. Nonetheless, as a result of the increased uncertainty we have reduced our IMZ target multiple to 0.9xDCF from 1.0xDCF, that of IMG, which has global producing assets to 1.5xDCF from 1.6xDCF, and further reduced our ARU target multiple discount to 0.85xDCF from 0.9xDCF. In terms of our valuation, we have assumed our gold price assumptions are lower than any base-line price for the windfall tax exceeds our modelled price assumptions. We still assumed Ecuadorian projects would also be subject to a 5% NSR royalty, although no such royalty currently exists.

If there is positive resolution and clarity during the course of the year with respect to Ecuadorian mining laws and taxation issues, Aurelian would regain its title as the most likely takeout candidate in the sector, and could provide investors with a double.
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