CRJ: DUNDEE SECURITIES REPORT
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Claude Resources Inc.
(CRJ-T: C$1.43) (CGR-A: US$1.45) INTRADAY
BUY, High Risk*
12-month target price: C$2.60 (was Restricted)
February 7, 2012
Paul Burchell / (416) 350-3499
pburchell@dundeesecurities.com
Vanessa Gravina / (416) 350-3389
vgravina@dundeesecurities.com
Reiterating our BUY rating
Claude Resources completed the acquisition of St. Eugene Mining on February 2. As Dundee Capital Markets acted as an advisor to Claude on the transaction, we were restricted from commenting on either company during the process. Now that the transaction has been concluded, we thought it timely to review our opinion of Claude's properties, including the now 100%-owned Amisk property in northern Saskatchewan.
Claude's main asset is the Seabee Mine located in the province of Saskatchewan. Seabee produced slightly more than 47,000 oz of gold in 2010, a level we expect to be repeated when the company reports its 2011 production results. Given recent exploration success on the property, Claude is looking to expand the operation from an average throughput of around 650 tonnes of ore per day (tpd) to upwards of 1,250 tpd or more - the mill has already been upgraded to 1,000 tpd. The increased throughput is forecast to drive production to around 80,000 oz per year by 2015.
The Amisk property, also located in Saskatchewan, hosts a large tonnage, low-grade gold and silver deposit. The most recent estimate suggests the deposit contains 827,000 oz of gold and almost six million oz of silver in indicated resources, plus an additional 589,000 oz of gold and 3.7 million oz of silver in inferred resources. We expect the upcoming (third quarter) preliminary economic assessment on Amisk to review the viability of developing an open pit operation capable of producing upwards of 120,000 oz of gold and 750,000 oz of silver per year beginning as early as mid to late 2017.
Last but not least, Claude continues to explore and develop resources on its Madsen Red Lake property located in northwestern Ontario. As we have noted before, we believe the Madsen property exhibits geological characteristics that are similar to the high-grade structures at Goldcorp's (G-T, BUY, C$60.00 target, last C$47.27) Red Lake Mine and the company continues to drill test the promising 8 Zone.
We have revised our operating and cost forecasts for the Seabee Mine and, with the completion of the St. Eugene transaction, are now including the Amisk property as an operating asset in our valuation of Claude. Our new net asset valuation estimate of C$2.57/share is based largely on our forecast of future cash flows discounted at 5%, plus expected cash at the end of 2012 and resources not included in our mine plans (primarily Madsen). We expect upcoming exploration and development news (including the potential to increase production from less than 50,000 oz per year to 200,000 oz by 2018) to drive the share price higher, and we are resuming coverage on Claude Resources with a BUY rating and a 12-month price target of C$2.60/share. |
