CIBC raised its target price on this Canadian
company and provided an update on its anticipated mine.
In a Sept. 19 research note, CIBC analyst Bryce Adams reported that Lundin Gold
Inc. (LUG:TSX) updated its forecasted economics on Fruta del Norte in southeast
Ecuador, and remains on track and on budget with construction there.
CIBC revised its model to reflect the changes and, consequently, raised
its target price on Lundin to CA$6 per share from CA$5.50. The mining
company's stock is currently trading at CA$4.91 per share. "At spot
prices, Lundin Gold now trades in line with its developer peers at 0.9x
price:net present value 5% (NPV5%)," Adams noted.
As for the adjusted project economics, Lundin's new NPV5% for Fruta del
Norte is $786 million. This 10% increase is driven by the company's use of
primary and secondary stopes rather than end slicing stoping. The approach
allows for greater operating flexibility and a lower backfill expense.
Regarding projected costs, Lundin has reduced them in light of optimized
mining methods and reduction in estimated use of reagents. Operating costs
dropped 7% to $537 per ounce, and all-in sustaining cost (AISC) dropped 4% to
$583 per ounce. "Lower costs have lowered the cutoff grade and increased
the mineable resource slightly," Adams explained.
With respect to construction at Fruta del Norte, it is more than a quarter
done. "Both declines have crossed the Machinaza Fault with no
significant water inflows," wrote Adams. Completed underground
development stands at about 2.9 kilometers. Concrete work at the processing
plant is about 30% finished.
Because continued construction progress will be Lundin's main priority for
the next 12 to 18 months, CIBC maintains its Neutral rating on the company.
"Longer term, we view Fruta del Norte as a highly attractive project, as
one of the highest-grade, undeveloped gold projects globally," Adams
concluded.
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Disclosures from CIBC, Lundin Gold Inc., September 19, 2018
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Important Disclosure Footnotes for Lundin Gold Inc. (LUG)
· CIBC World Markets Inc. expects to receive or intends to seek
compensation for investment banking services from Lundin Gold Inc. in the
next 3 months.