Exeter Resource Corp.
(XRC-V, XRA-A) C$6.28
Resuming Coverage Following Close of Bought Deal
Event
We are resuming coverage of Exeter following the completion of a bought
deal public offering of common shares. The company sold 8,550,000 common
shares at a price of $5.85/share for gross proceeds of $50,017,500.
The funds raised are expected to be deployed for exploration and development
of its Cerro Moro and Caspiche properties and for general corporate purposes.
Impact - POSITIVE
With drilling having recently resumed at Caspiche, we expect a renewed
market focus on the asset as the company attempts to expand the deposit
southwest and at depth, as well as test a potential second porphyry body that
was identified at the end of the prior campaign. We value Caspiche on a perounce
basis, applying $25/oz to the estimated gold inventory of 19.6 million
ounces to arrive at a total project valuation of $490 million.
Exploration and development work continues to advance at Cerro Moro, with
two drill rigs focused on upgrading high-grade resources within the Escondida
Zone and testing the prospective Fomicruz extension. We value the project
based on the existing resource inventory (646,000 ounces at 18 g/t goldequivalent),
but believe there is significant potential to expand the deposit
with only 25 of 66 veins identified on the property having been tested.
Adjusting for the equity financing, our total corporate NAV5% rises to
$9.28/share (from $8.40). Our 12-month target price increases to $9.50/share
and we maintain our Speculative BUY recommendation.
Details
Bought Deal Public Offering
• Exeter announced the close of a bought deal offering that was originally
announced on November 10th. We note that the underwriters have been
granted an over-allotment option exercisable in whole or in part, to
purchase up to an additional 1,282,500 shares at a price of $5.85/share
up to the 30th day following the close of the offering.• Post-financing, we estimate the company holds $74 million in its treasury, before including the potential
exercise of the underwriter’s over-allotment option.
Caspiche
• Major Undeveloped Global Gold Deposit: On September 14th, the company announced an updated
resource estimate for Caspiche that outlines an inferred resource of 19.6 million ounces of gold, 137
million ounces of silver and 4.84 billion pounds of copper, for a total of 33.7 million gold-equivalent
ounces.
• Drilling Resumes - Updated Resource Estimate Expected by Q3/10: A new drilling program at
Caspiche began in mid- October and is expected to follow through to May 2010. The program is expected
to focus on upgrading the higher grade central zone of the deposit to indicated status and expanding
project resources by drilling to the southwest and to depth. With a total of 4 rigs on-site, Exeter expects to
provide an updated resource estimate for the project by Q3/10.
• Work Advancing towards Project Development Study: In addition to drilling, Exeter intends to
advance metallurgy, engineering, water and environmental studies with the objective of completing a
Preliminary Economic Assessment by year-end.
Cerro Moro
• Resource Conversion Remains the Primary Goal: Exeter currently has four drill rigs at Cerro Moro
with work focused on upgrading the high-grade resources within the Escondida Zone and testing the
prospective Fomicruz extension. The objective of the program is to define an indicated resource for a
Preliminary Economic Assessment, from which it expects to be able to make a production decision.
• Positive Results from Fomicruz Extension: Positive results from infill drilling of the West, Central and
East sections of the Escondida Zone have provided additional confidence with respect to the existing
inferred resources. Drilling from the Fomicruz extension, which, in our view, represents the best
opportunity to add bonanza-grade ounces to the resource base, appears promising with the company
intersecting vein material it interpreted as having been emplaced above the productive boiling zone in the
system.
• Modeled Resource In-Line with Current Estimate: We presently model a mineable inventory in-line
with the current resource (646,000 ounces at 18 g/t gold-equivalent). We believe the deposit hosts
significant exploration potential and remain optimistic that additional drilling will meaningfully expand
the project’s resource base in a revised estimate scheduled for Q2/10.
• Cerro Moro within “Area of Special Interest for Mining”: On November 26th, new mining legislation
was passed in the Province of Santa Cruz, Argentina that provides for the creation of an Area of Special
Interest in Mining, in which mining activities may occur. Exeter has confirmed that Cerro Moro is within
this defined area and project development will not be affected. We believe that permitting risk for the
project is substantially reduced with the company’s joint venture agreement with Fomento Minera de
Santa Cruz Sociedad del Estado, the provincial mining company of Santa Cruz Province. Fomento holds
a 20% interest in the Escondida-Fomicruz property and can acquire a 5% participating interest in the
Cerro Moro project following the granting of mining permits.
Outlook
We anticipate the following developments:
• Ongoing – Drill results from Cerro Moro and Caspiche
• Q2/10 – Revised resource estimate for Cerro Moro
• Q3/10 – Revised resource estimate for Caspiche
• Q3/10 – Preliminary Economic Assessment for Cerro MoroJustification of Target Price
We employ our base 1.0x multiple to our corporate valuation which includes credits for both Cerro Moro and
Caspiche – the former, derived from our estimate of NAV5% on the basis of a modelled resource base of 0.65
million ounces gold-equivalent, and the latter, from the application of C$25/oz to a gold inventory of 19.6
million ounces.
With respect to Caspiche, we note that comparable assets in the Maricunga district of northern Chile have sold
for approximately US$40-50/oz. For example, Kinross Gold recently purchased Lobo Marte from Teck for
US$42/oz (Q4/08) and Barrick acquired its 51% stake in Cerro Casale for the equivalent of US$46/oz (Q4/07).
Key Risks to Target Price
Gold, silver and fuel prices, the governing fiscal and legislative regimes, the timing of key developments,
forecast risk relating to deposit size, market conditions, capital and operating costs, foreign exchange rates,
resources, operating parameters, permitting, environmental, indigenous peoples, and staffing and key
personnel retention.
Investment Conclusion
We are resuming coverage of Exeter following the completion of a bought deal public offering of common
shares. In our view, the company now appears well positioned to aggressively advance development at its
Cerro Moro and Caspiche properties. Adjusting for the equity financing, our total corporate NAV5% rises to
$9.28/share (from $8.40). Our 12-month target price increases to $9.50/share and we maintain our Speculative
BUY recommendation. |
