Integra Gold Corp. (ICG-V)

Transcription

1 (ICG-V) Drills Adding Gold Resources at Lamaque South May 20, 2015 Michael Curran, CFA (416) ICG s main asset is the 100%-owned Lamaque South gold project in Val d Or, Quebec. With 8 drills, the company has completed just under 45,000 of the 50,000m drill programme planned for this year. We see 3 main takeaways from this morning s drill result update: Strong Drill Results Are Adding Gold Resources while some of the intercepts represent infill drilling to confirm existing resources, a number of the holes successfully extended known areas of gold mineralization along strike or at depth. The bulk of the reported assay results are from the main Triangle zone. We were pleased to see a number of 2-5 metre intercepts grading 8-20g/t gold. The best intercept was 16 metres grading 10.7g/t from the C-4 zone (see below and fig 2 on page 2). C-vein Structures Could Add Materially To the Picture the vast majority of current gold resources outlined at Lamaque South occur within shallow-dipping T veins, which tend to be narrow, are at a more difficult angle to mine underground, and are generally restricted in strike/dip to their host rock. Newly identified C vein structures are more steeply dipping, can have greater width, and more extensive strike and/or downdip length all positive attributes for underground mining. Still Plenty of Drill Results To Come with just 27 of the 99 drill holes completed so far this year having been reported, there remains a hefty backlog of pending drill results to come over the next few months. Investment Thesis Unchanged: We consider the Lamaque South to be economic with existing resources, and see above average potential to grow gold resources materially (+100%) from current levels. Update BUY (unch.) $0.70 (unch.) Previous Close $ month Target Price $0.70 Potential Return 154.5% Dividend Yield 0.0% 52 Week Price Range $.14-$.36 Annual Estimates (C$MM, except per unit) FY14 FY15e FY16e FY17e Revenue $0.0 $0.0 $0.0 $42.1 Net Income -$1.8 -$4.6 -$6.0 $6.8 Shares O/S (wgt avg) EPS (operating) -$0.01 -$0.02 -$0.02 $0.02 CFPS -$0.03 -$0.03 -$0.02 $0.04 Valuation P/E neg. neg. neg. 16.4x P/CF neg. neg. neg. 7.1x NAV $0.74 $0.75 $0.82 P/NAV 0.4x 0.4x 0.3x Financials Shares Outstanding million Mgt/Insiders 17% (C$MM) Market Cap $69.7 LT Debt (corporate) $0.0 Working Capital $21.5 Enterprise Value $48.2 Fiscal Year End May 31 Reserves / Resources 2P Reserves - M+I Resources 0.8 MMoz Total Resources (M+I+I) 1.1 MMoz Quarterly Estimates Q1/14 Q2/14 Q3/14 Q4/14 EPS (operating) $0.00 $0.00 $0.00 $0.00 CFPS -$0.01 -$0.01 -$0.01 -$0.01 Q1/15 Q2/15 Q3/15e Q4/15e EPS (operating) $0.00 -$0.01 -$0.01 -$0.01 CFPS $0.00 -$0.01 -$0.01 -$0.01 Company at a Glance Integra Gold Corp. is a Canadian-listed company focused on the exploration and development of its high-grade Lamaque South gold project in Val d'or, Quebec. All prices in C$ unless otherwise indicated. Stock Performance Integra Gold Corp. (ICG-CA) Volume (Millions) Price (CAD) Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Volume Integra Gold Corp. Average Volume - ICG-CA Source: FactSet Prices Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H

2 Investment Thesis Mine Development Potential Is Real We consider Integra Gold to be an attractive investment for the potential to become a +100Koz/yr gold producer, and the potential for premium valuations for the high-grade and low political risk of the Lamaque South project. The current PEA focuses on the Parallel and Triangle zones (see fig4). The Parallel zone can be accessed easily from existing underground development on the Sigma-Lamaque property, while a new ramp will be required to access ore from the Triangle zone. Fig 1 Triangle Zone: T and C Veining C-veins (steeper) T-veins (shallow) Source: Company website Valuation Methodology Our favored valuation method for precious metals producers is a price-tonet-asset-value (P/NAV) multiple based on a discounted cash flow (DCF) model constructed using our estimates of the parameters of existing or potential mining operations. We employ a long-term gold price assumption of US$1,500/oz starting in May 20, 2015 Page 2 Michael Curran mcurran@beaconsecurities.ca

3 Future year cash flows are then discounted using a base rate of 5%, to which a risk premium may be added, depending on the overall political risk the company s assets are exposed to (low-no premium, medium-2% added, high-4% added). Integra s asset exposure to Quebec is considered low risk (i.e. no premium added). As the Lamaque South project has yet to have a completed feasibility study, we impose a 2% premium to our discount rate (i.e. 5% + 2% = 7%). Fig 2 Net Asset Value Breakdown: Integra Gold Corp. Value Per Share (C$/sh) Discount Rate Ownership C$MM FY15e FY16e FY17e Lamaque South (Quebec) 7% 100% $322 $0.69 $0.70 $0.77 Other exploration $0 $0.00 $0.00 $0.00 OPERATING ASSETS $322 $0.69 $0.70 $0.77 Working Capital $22 $0.05 $0.05 $0.05 LT Debt (corporate only) $0 $0.00 $0.00 $0.00 CORPORATE ASSETS $22 $0.05 $0.05 $0.05 NET ASSET VALUE $344 $0.74 $0.75 $0.82 Source: Beacon Securities estimates In Fig. 2 we provide forward-looking NAV/sh estimates to show how the company s NAV is forecast to change over the next few years. For junior gold producers, we employ a target range of 0.5x-1.0x P/NAV. Using a target P/NAV multiple of 0.6x on our 2015 NAV estimate suggests a fair value of $0.45/sh for Integra Gold. On a forward-looking P/CF multiple analysis basis, we forecast Integra Gold could average $0.26/sh of CFPS during the first three years of full production. Discounting our forward-looking cash flow estimates back to 2015 (at 20% per annum) suggests $0.15/sh. Applying our target multiple of 6.0x P/CF to this estimate, which is at the lower end of our 5x-10x target range for junior gold producers, suggests a fair value of $0.90/sh. Using the valuation methods described above, and an equal blend of fair values generated by NAV and CF, generates our 12-month target price of $0.70 per ICG share. Fig 3 High-Grade Non-Producer Peer Group: AMC/oz (M+I) (M+I+I) Share Shares Market Measured Total Gold AMC/ AMC/ Sym- Price O/S Cap AMC Indicated Resource Grade M+I oz M+I+I oz Area of Company Exch C$/sh M US$M US$M 000oz 000oz g/t US$/oz US$/oz Major Exploration Continental Gold CNL-T $ $334 $276 2,800 7, Colombia Dalradian Resources DNA-T $ $90 $67 1,004 3, N. Ireland Pretium Resources (hgr-only) PVG-T $ $974 $946 9,600 15, BC Roxgold Inc. ROG-V $ $199 $ , Burkina Faso Rubicon Minerals RMX-T $ $513 $ , Ontario Mean Integra Gold ICG-V $ $78 $ , Quebec Source: Company reports, Factset data May 20, 2015 Page 3 Michael Curran mcurran@beaconsecurities.ca

4 Fig 4 Property Plan and Cross-Section: Lamaque South Zones A B B A Source: Company reports May 20, 2015 Page 4 Michael Curran mcurran@beaconsecurities.ca

5 Appendix: Summary Financials Integra Gold Corporation Beacon Securities Limited Symbol ICG-V Share Price $0.28 Stock Rating BUY Shares O/S (MM) Price Target $0.70 Mkt Cap ($MM) 70 Michael Curran, CFA (416) INCOME STATEMENT FY14 FY15e FY16e FY17e RATIO ANALYSIS FY14 FY15e FY16e FY17e Revenues C$MM Dividends Per Share $/sh Operating Costs C$MM Dividend Yield % EBITDA C$MM (3.6) (5.6) (6.0) 16.9 LT Debt/(Total Capital) % % 34% DD&A C$MM EV/EBITDA x EBIT C$MM (3.7) (5.6) (6.0) 10.2 PRICES/EXCHANGE RATES CY13 CY14e CY15e CY16e Interest Expense C$MM Gold Price US$/oz $1,404 $1,275 $1,300 $1,350 EBT C$MM (2.8) (5.0) (5.0) 11.2 Realized Gold Price US$/oz Taxes/Recovery C$MM (1.9) (1.0) Silver Price US$/oz $23.68 $19.50 $20.00 $20.50 Net Income (reported) C$MM (1.8) (4.6) (6.0) 6.8 Realized Silver Price US$/oz Non-Recurring Items/Other C$MM US$/C$ Net Income (operating) C$MM (1.1) (4.0) (5.0) 7.8 MINE/EQUITY PRODUCTION FY14 FY15e FY16e FY17e Shares o/s (wgt avg.) MM Gold Production 000 oz ,061 EPS (operating) $/sh ($0.01) ($0.02) ($0.02) $0.02 Total Cash Costs US$/oz P/E Multiple x n.m. n.m. n.m. 0.0x All-in Sust. Costs US$/oz Cash Flow (operating) C$MM (3.0) (5.0) (5.0) 17.9 Total incl. Cash Costs + royalties All-in CCs incl. sustex, exploration, corpg&a CFPS $/sh ($0.03) ($0.03) ($0.02) $0.04 P/CF Multiple x n.m. n.m. n.m. 0.0x 200,000 $800 SCFP Cash Flow from Operations Gold Prod'n (000oz) Cash Costs (US$/oz) Net Income C$MM (1.8) (4.6) (6.0) ,000 $600 DD&A C$MM Deferred Taxes C$MM (1.9) (1.0) Other C$MM Changes in Working Capital C$MM ,000 $400 (0.7) (5.0) (5.0) 17.9 Cash Flow From Investing Capital Expenditure (net) C$MM (8.6) (15.0) (25.0) (50.0) 50,000 $200 Acquis./Investments C$MM Other C$MM (8.6) (15.0) (25.0) (50.0) Cash Flow From Financing 0 $0 Equity Issues (net of costs) C$MM FY13 FY14 FY15e FY16e FY17e FY18e FY19e Net Borrowings C$MM Dividends Paid & Other C$MM RESERVES / RESOURCES Reserves MMoz - Net Inc/Dec (incl FX) C$MM (2.1) AMC/oz* US$/oz n.m. Cash at End of Year C$MM Total Resources MMoz 1.1 BALANCE SHEET AMC/oz** US$/oz 54 Cash & Equivalents C$MM * AMC = Adjusted Market Capitalization = Market Cap + LT Debt - working cap Total Current Assets C$MM ** Total Resources include measured, indicated, and inferred PP&E & Mining Interests C$MM ESTIMATED NET ASSET VALUE (NAV)/SHARE Other C$MM Status Own'ship $MM $/Sh %NAV Total Assets C$MM Lamaque South (Quebec) explor. 100% $322 $ % Current Liabilities C$MM Other $0 $0.00 0% Long Term Debt C$MM Total Operating $322 $0.69 Other LT Liabilities C$MM - (1.0) (1.0) 2.3 Working capital $22 $0.05 6% Total Liabilities C$MM LT Debt $0 $0.00 0% S/Holder Equity C$MM NAV $344 $0.74 Total Liab. & S/Holder Equity C$MM Current P/NAV 0.4x Working Capital C$MM Source: Company reports, Beacon estimates May 20, 2015 Page 5 Michael Curran mcurran@beaconsecurities.ca

6 Disclosure Requirements Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No Does the analyst who prepared this research report have a position, either long or short, in any of the issuer s securities? Yes No Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? Yes No Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? Yes No Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? Yes No Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? Yes No Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? Yes No Is Beacon Securities a market maker in the equity of the issuer? Yes No Has the analyst visited the head office of the issuer and viewed its operations in a limited context? Yes No Did the issuer pay for or reimburse the analyst for the travel expenses? Yes No All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete. All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries. As at April 30, 2015 # Stocks Distribution Buy 44 66% Buy Total 12-month return expected to be >15% Speculative BUY 14 21% Speculative Buy Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss Hold 3 4% Hold Total 12-month return expected to be between 0% and 15% Sell 0 0% Sell Total 12-month return expected to be negative Under Review 6 9% Under Review Currently undergoing a change of analyst coverage Total % Dissemination Beacon Securities distributes its research products simultaneously, via , to its authorized client base. All research is then available on via login and password. Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H