Initiating Coverage on Colossus Minerals

JACQUES WORTMAN, Gmp Securities Ltd. (06/04/2009)
"Colossus Minerals has high precious metals grades and Brazil is a very favorable mining jurisdiction. Initiating coverage with a BUY recommendation and 12 month target of $4.25 per share.

The Serra Pelada project is located 78 kilometers southwest of Marabas in northern Para state in Brazil. In general, the location is relatively remote, although there is a small town which remains post the historic mining of the well-publicized Serra Pelada open-pit by garimperos (small-scale miners). We would characterize availability of infrastructure as being favorable, with road access (would need to be upgraded), power (CVRD is upgrading power to the region) and water all available.

. . .We recognize that there is the potential for the final metal inventory to well exceed our preliminary estimates as mineable grades could exceed our assumptions due to the high-grade nature of the deposit, but await further data to confirm. Consistent with our historical approach for valuing projects at the pre-production stage, we average our DCF valuation with a valuation generated by applying a valuation multiple to our estimate of our mineable resource estimate. In the case of Serra Pelada, given the high-grade nature of the mineralization and our view that the asset would be an attractive takeover target, we are using a valuation multiple of US$150 per ounce. Our initial NAV based on this approach, our current assumptions and post the recent equity issue, is $2.51 per share, so the shares are currently trading at 1.4 times NAV, a reasonable level given the upside potential to our estimates.

We are initiating coverage on Colossus Minerals with a BUY recommendation and 12-month target of $4.25 per share based on a 1.7 times target NAV multiple. This premium multiple is justified by:
  • The potential for grades and in-situ metal inventory to exceed our estimates
  • A ready workforce and our favorable view towards Brazil as a mining jurisdiction
  • Exploration upside"

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