Canaccord sets 18c target for Capricorn, as it approaches decision on new 100kozpa gold mine

8th March 2018

Capricorn Metals (ASX: CMM) is one of the “very few” Australian gold projects with a plus-100,000-ounce-a-year project in the development pipeline, according to global broker Canaccord Genuity.

And the emerging gold stock is set to demand increasing attention from the market as it closes in on a development decision for its flagship Karlawinda gold project this year, it says.  

“CMM is one of a select few gold developers with an Australian project sufficiently advanced to be at a financing decision in 2018,” says Canaccord’s Perth-based resource analyst Tim McCormack in an initiation note which puts an 18c price target and speculative buy recommendation on the gold developer.

That’s more than double the current share price of 8c.

“With the likes of Dacian Gold, Gold Road and Gascoyne Resources now funded and in construction, attention is turning to who’s next in the gold development pipeline, and we see Capricorn as a standout among the greenfield peer group,” he wrote.

While Capricorn has completed a Feasibility Study outlining a ~100,000ozpa scenario at an AISC of A$1025/oz for 6.5 years, Canaccord expects a pending Reserve update to underpin a longer life project and therefore assumes an eight-year life in its modelling.

“While at first glance, the Resource and Reserve of the Bibra deposit looks low grade at ~1.1g/t, the asset has a number of other redeeming features that drive a compelling development case,” McCormack said.

“In funding the project development and working capital requirements while maintaining exploration activities, we have assumed a 50:50 debt/equity split raising a total of $140 million in the second half of 2018.

“CMM currently has $10 million in cash (no debt) comfortably positioning the company through to finalisation of the project financing.”

McCormack forecasts that the company will generate EBITDA of $75-80m a year and free cash flow of $50-60m a year once at steady-state production, placing it on “undemanding multiples”.

He also draws attention to Capricorn’s active exploration program, which he says has the potential to deliver “considerable upside” on the existing Resource and Reserve as it maintains an aggressive drilling effort through 2018.

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