Trelawney Mining and Exploration Inc. TRR-TSXV
Recent Data Forces a Recalibration of Our Resource Model
Bart Jaworski, P.Geo.
bart.jaworski@raymondjames.ca
604.659.8282
RATING Outperform 2
Target Price (6-12 mths) C$5.90
Closing Price C$4.70
Total Return to Target 26%
Event
Yesterday morning, TRR released assays from 10 holes from its 92.5%-interest Cote Lake deposit on the Chester Property, Ontario.
Action
We continue to see value in TRR shares given intangible near-term exploration upside and eventual takeover potential (see page 4 for details).
Analysis
* Closing off to SW? Of the 10 holes released, 6 were step-outs concentrating around the SW extension (Sections 83 and 84) of the Cote Lake zone; 2 of the 6 cut good mineralization (86m of 0.91 g/t Au cut grade and 42m of 0.55 g/t cut), but the other 4 did not. This, along with poor results from the last TRR press release (holes 75 and 80 along Section 85) suggests to us Cote Lake may be closing off in this direction.
* Or Direction is Changing. There is still hope that the zone continues, albeit, at a different direction. The two good holes from the Section 84 were located in the northern-most part of the section coinciding with a separate IP anomaly. In our view, this suggests potential the zone may continue to the West or North.
* Infill Holes Decent. Four holes were released from previously drilled sections (Sections 86, 92+50E, and 93+50E). All four cut impressive widths (up to 265m and 540m), deep depths (up to 710m below surface, deepest yet) and at grades similar to, albeit 20-40% below, current resource grades of 1.0 g/t Au.
* Model Changes. The current resource is 4.2Moz grading 1.00 g/t Au (cut; inferred; ~800m strike). Our previous model assumed 7.4Moz grading 0.98 g/t Au, spanning Sections 96+00E to 83+00E (1400m strike). Recalibrating based on the last few months of data, we now assume 6.1Moz grading 0.91 g/t Au. This change lowers our Cote Lake NPV (5%) by 25% to C$865 mln (from C$1.1 bln).
Valuation
We are maintaining our Outperform rating but decreasing our target price to $5.90 (from $6.80). Our target is predicated on a NAVPS of $4.90 (from $5.93) and a 1.2x (from 1.1x) P/NAV multiple (see page 4 and appendix for details).
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