TD Newcrest Raises Target on DGC

DANIEL EARLE, Newcrest, TD Securities (02/02/2010)
"In September, Detour released the results of the Pre-Feasibility Study (PFS) for its eponymous project in northern Ontario. The study disclosed the potential for a large-scale open pit mine with average annual gold production of 560,000 oz/year at a cash cost of US$404/oz over a 14.5 year mine life.

We anticipate the company releasing its DFS in early Q2/10 and have revised our project model and valuation to reflect our expectations. These include: increased reserves and a longer mine life, higher levels of gold production, and higher capital and operating costs that result primarily from the stronger Canadian dollar.

As a result, our 12-month target price increases to $22/share (from $20/share) and we reiterate our Speculative BUY recommendation. In our view, Detour offers an attractive valuation which is highlighted by a comparison to what we consider to be its closest peer, Osisko. We note that Osisko trades at 1.5x NAV5%, a premium of 110%, on the basis of a similar project. A valuation at this level would imply a potential target price for Detour of $33/share and is representative, in our view, of what may be achievable if the company were to advance its project through feasibility, permitting, and complete project financing over the next 12 to 18 months."

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