TRX: Feasibility Update Reiterates Robust Economics

STEFAN IOANNOU, Haywood Securities (10/14/2009)
"The feasibility study update, which supersedes an April 2008 feasibility study, includes an increased reserve base containing 2.1 billion pounds of copper and 6.0 million ounces of gold, increasing the project's open-pit mine life by 47% to +22 years. In addition, life-of-mine average costs have decreased marginally, headlined by an initial capital-cost estimate of $915 million (from $917 million) and an on-site operating cost estimate of $6.96 per ton milled (from $7.12 per ton milled).

Our formal valuation remains focused on the Mt. Milligan copper-gold project in British Columbia-Terrane's flagship asset. With a cash balance of $1.5 million (at June 30, 2009), coupled with a credit facility of up to $40 million ($14.5 million drawn at June 30, 2009), backed by Goldcorp, Terrane is well-positioned to make a formal production decision at the project by Q1/10. . .Timing associated with Goldcorp's one-time option to convert its 240-million ¬share position in Terrane into a participating joint-venture interest in the Mt. Milligan project remains unchanged (January 8, 2010, expiry). Goldcorp now has the benefit of an updated feasibility study to support its decision. Furthermore, with provincial environmental approval in hand and federal approval anticipated in Q4/09, the remaining 3-month option term gives Goldcorp the ability to ensure the project is 'fully permitted' prior to exercise.

Terrane's recent market price appreciation, in part fueled by gold (and copper) price strength and an 'imminent' decision from Goldcorp to exercise its option, has prompted us to reassess the (equity) financing assumptions in our formal valuation, which now includes equity financings to fund construction at Mt. Milligan and Berg priced at $0.75 to $0.85 per share ($0.25 to $0.50 per share previously). Less modeled equity dilution has increased our formal valuation on a 'fully financed' per-share basis, which is in line with current market pricing; hence, our maintained SECTOR PERFORM rating."

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