Aurcana coverage initiated by RBC Dominion Securities...
INITIATION | COMMENT
DECEMBER 18, 2012
Aurcana Corp. (TSXV: AUN)
Set to become a Tier II silver producer
Sector Perform
Speculative Risk
Price: 0.97
Event
We initiate coverage of Aurcana with a Sector Perform, Speculative risk rating and C$1.25 price target.
Investment Opinion
While Aurcana provides investors with an attractive growth profile and improving free cash flow, we believe a Sector Perform rating is warranted given the company is fairly valued relative to its larger producing peers, the ramp-up of Shafter is likely to take longer than the market anticipates and the potential for Aurcana to pursue all-share acquisitions given a desire to grow silver production.
• Production expected to more than triple: With the ramp-up of Shafter (Texas) and ongoing throughput improvements at La Negra (Mexico), silver production is expected to quadruple by 2015E with annual silver production forecast to increase to 6 MMoz from 1.5 MMoz in 2012E.
• Growth dependent on successful ramp-up of Shafter: Although the ramp-up of Shafter is likely to take longer than expected, we believe the management team now in-place at the mine has the required experience and knowledge to address the challenges and throughput issues which have negatively impacted the ramp-up to-date. However, if further delays occur, the company's growth and free cash flow potential could be deferred or significantly reduced.
• Acquisitions likely on the agenda: Although we expect the company is likely to continue to pursue brownfield expansion opportunities, based on our conversations with management, it appears the company is on the prowl for additional growth opportunities. With no exploration or development stage projects beyond its two mines and desire to grow it’s production profile, we believe it is highly probable the company could make an acquisition in 2013.
• Above average free cash flow potential: Given production growth, declining capital expenditures and robust forecast silver prices, we expect Aurcana has the potential to generate strong free cash flow over the next 3 years, with a projected free cash flow yield of 11.8%, above its peer average yield of 6.3%.
More (twenty two pages) at:
https://www.rbcinsight.com/Insight2/share/document?documentKey=1031%2D241350%2D7KKSKR19RILCVBFSK4PAPH948U
Dan  |
