Dacian Gold has the best mid-tier gold asset on the ASX, says top Melbourne fund manager
13th April 2018
Resources Rising Stars
Dacian Gold (ASX: DCN) owns the most attractive mid-scale gold production asset on the ASX, according to leading Melbourne-based fund manager John Deniz from Paragon Funds Management.
Writing on Livewire, Deniz says Dacian has proven to be a solid performer since his fund first acquired its position in the emerging producer in May 2017 “at a time of volatility”.
“In our view, Dacian’s Mt Morgans is the most attractive mid-scale (200kozpa) production asset no the ASX, making it a highly desirable asset,” he wrote, noting that “its next material resource discovery” would likely prove to be the catalyst for Dacian to participate in M&A activity – which he expects to return to the Australian gold sector.
“Dacian’s cornerstone asset is the 100%-owned Mt Morgan high-margin gold project in the Laverton goldfield in WA,” Deniz wrote.
“Dacian is well placed to produce 200koz+ pa of gold from FY19F at all-in costs of ~$1000/oz.
“The company continues to offer excellent exploration upside with a high likelihood of increasing its already impressive 10+ year mine life. With A$ gold prices A$1700/oz, the company is set to generate strong free cash-flows.
“Rohan Williams, Executive Chairman and CEO, is one of the best in the business,” Deniz continued.
“Having done this successfully before with Avoca (micro-cap gold exploration IPO, de-risked through financing, development to production, before a takeover for A$1 billion by Anatolia Minerals), Rohan is doing it all over again with Dacian and is well-aligned with strong equity ownership.”
Deniz says Dacian’s share price has exhibited a typical resource ‘S-curve’, where the stock initially re-rated through its exploration, resource delineation and feasibility phases, then correcting through its funding and construction phases.
“We patiently waited for Dacian to de-risk its funding phase, and then established our position in mid-May 2017 at $1.65/sh at an EV/FY19F CF multiple of ~2.5x. This compares with producing peers with similar attributes that trade at ~8x,” he said.
“We were confident Dacian’s ‘plain-vanilla’ 2.5mtpa plant construction being done by GR Engineering (a firm who has a great track record of execution and in our opinion, is one of the best in Australia) would be completed on time and budget, as has been the case.
“Pleasingly Dacian’s share price has almost doubled since our entry point and still offers value at a modest ~5x FY19F CF.”
To see John Deniz’s article on Dacian Gold, click here.
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