Dalradian Resources Inc. (DNA-T) Drills Turning Once Again In Northern Ireland

Transcription

1 (DNA-T) Drills Turning Once Again In Northern Ireland March 31, 2015 Michael Curran, CFA (416) Dalradian Resources 100%-owned Curraghinalt gold project in Northern Ireland boasts a high-grade, narrow vein gold deposit. Total resources currently stand at 3.5 million ounces of gold gold). Drills Turning: this year s programme includes 20,000m of drilling (15km underground and 5km from surface). The company expects to deploy up to 6 drills on the property. Underground Programme: will include 1,100m of development and 15,000m of drilling (mostly infill), as well as mining method evaluation (test stoping), environmental and engineering studies, all part of a pre-feasibility study (PFS) for the project. Bolstered Technical Team: in mid-march, Eric Tremblay joined Dalradian as COO. He brings over 25 years of mine building and mine operating experience. He recently was General Manager of the Canadian Malartic mine, and has extensive prior experience with underground mines including Westwood, Doyon, Mouska, and Sleeping Giant (all in Quebec). Stephen Barnes, appointed Environmental Manager, came from Golder Associates (an environmental consulting firm), and Robert Morrison, appointed Mineral Resources Manager, is a geologist from Tetra Tech (a resource consulting firm). Cashed-Up: the company finished 2014 with just over $33 million in cash, completed a subsequent $11.3 million private placement, and received a further $8.9 million from exercised warrants during Q1/15. As a result, Dalradian has more than sufficient funds to complete the planned $30 million 2015 programme. Update BUY (unch) $1.75 (unch) Previous Close $ month Target Price $1.75 Potential Return 90.2% Dividend Yield 0.0% 52 Week Price Range $.46-$1.15 Annual Estimates (C$MM, except per unit) FY14 FY15e FY16e FY17e Revenue $0.0 $0.0 $0.0 $0.0 Net Income -$6.8 -$6.6 -$7.7 -$5.5 Shares O/S (wgt avg) EPS (operating) -$0.05 -$0.03 -$0.03 -$0.02 CFPS -$0.05 -$0.03 -$0.03 -$0.02 Valuation P/E neg. neg. neg. neg. P/CF neg. neg. neg. neg. NAV $2.71 $2.95 $3.12 P/NAV 0.3x 0.3x 0.3x Financials Shares Outstanding million Mgt/Insiders 3% (C$MM) Market Cap $149.2 LT Debt (corporate) $0.0 Working Capital $49.0 Enterprise Value $100.2 Fiscal Year End December 31 Reserves / Resources 2P Reserves - M+I Resources 1.0 MMoz Total Resources (M+I+I) 3.5 MMoz Quarterly Estimates Q1/14 Q2/14 Q3/14 Q4/14 EPS (operating) -$0.01 -$0.01 -$0.01 -$0.01 CFPS -$0.01 -$0.01 -$0.01 -$0.01 Q1/15e Q2/15e Q3/15e Q4/15e EPS (operating) -$0.01 -$0.01 -$0.01 -$0.01 CFPS -$0.01 -$0.01 -$0.01 -$0.01 Company at a Glance Dalradian Resources Inc. is a TSX-listed gold and silver exploration and development company, officed in Toronto, with operations focused in Europe. Current exploration activity is targeting gold projects in Northern Ireland and Norway. All prices in C$ unless otherwise indicated. Stock Performance Dalradian Resources Inc. (DNA-CA) Volume (Millions) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Volume Average Volume - DNA-CA Dalradian Resources Inc. Price (CAD) Source: FactSet Prices Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H

2 Investment Thesis High Grade On The Cheap We view Dalradian Resources as an attractive play for exploration and development success. Our primary interest relates to the potential we see for the company s Curraghinalt gold project in Northern Ireland to become a low cost, medium-sized (+150Koz/yr) underground gold mine. Fig 1 Property Location (left) and Surface Plan: Curraghinalt Project Source: Company reports, Factset share data 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 US$1,500/oz long-term gold price assumption starting in Future year cash flows are then discounted using a base rate of 5%, to which a risk premium is added, depending on the overall political risk the company s assets are exposed to. Dalradian s asset exposure to Northern Ireland is considered medium risk (5% base + 2% premium). March 31, 2015 Page 2 Michael Curran mcurran@beaconsecurities.ca

3 Fig 2 Net Asset Value Breakdown: Dalradian Resources Discount Value Per Share (C$/sh) Rate Ownership C$MM FY15e FY16e FY17e Curraghinalt (N.Ireland) 7% 100% $839 $2.55 $2.80 $3.03 Other exploration $0 $0.00 $0.00 $0.00 OPERATING ASSETS $839 $2.55 $2.80 $3.03 Working Capital $49 $0.13 $0.07 $0.18 LT Debt (corporate only) $0 $0.00 $0.00 $0.00 CORPORATE ASSETS $49 $0.13 $0.07 $0.18 NET ASSET VALUE $888 $2.67 $2.87 $3.22 Source: Beacon Securities estimates In Fig. 1 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 (annual gold output below 250,000oz), we employ a target range of 0.5x-1.0x P/NAV. Using a target P/NAV multiple of 0.75x on our 2015 NAV estimate suggests a fair value of $2.00/sh. On a forward-looking P/CF multiple analysis basis, we forecast Dalradian could achieve average CFPS of $0.41/sh during the first three years of operation ( ). Discounting back to 2015 (at 20% per annum) suggests $0.20/sh. Applying our target multiple of 7.5x P/CF to this estimate, which remains towards the lower end of our 5.0x-12.5x target range for junior gold producers, suggests a fair value of $1.50/sh. Fig 3 Peer Group of Explorers: AMC/oz (M+I) (M+I+I) Share Shares Market Measured Total Gold AMC/ AMC/ Sym- Price O/S Cap AMC Indicated Resource Grade M+I oz M+I+I oz Area of Company Exch C$/sh M US$M US$M 000oz 000oz g/t US$/oz US$/oz Major Exploration Continental Gold CNL-T $ $223 $151 2,800 7, Colombia Integra Gold ICG-V $ $77 $ , Quebec Patagonia Gold PGD-LN ,048 $45 $45 1,534 1, Argentina Pretium Resources (hgr-only) PVG-T $ $782 $731 9,600 15, BC Roxgold Inc. ROG-V $ $144 $ , Burkina Faso Rubicon Minerals RMX-T $ $394 $ , Ontario Mean Median Dalradian Resources DNA-T $ $136 $91 1,004 3, N. Ireland Source: Company reports, Factset share data For earlier-staged explorers, we also employ the more basic valuation metric of Adjusted Market Capitalization per total resource ounce (AMC/oz). As a third valuation metric for Dalradian, we employ a target AMC/oz multiple of US$75/oz (increased from US$55/oz previously) for the current resource base of 3.5MMoz, suggesting a fair value of $1.75 per DNA share. Using the fair values outlined above, and a weighting of 50% AMC/oz and 50% (P/NAV + P/CF) generates our 12-month target price of C$1.75/sh. March 31, 2015 Page 3 Michael Curran mcurran@beaconsecurities.ca

4 Appendix : Summary Financials Dalradian Resources Inc. Beacon Securities Limited Symbol DNA-TSXv Share Price $0.92 Stock Rating BUY Shares O/S (M) Price Target $1.75 Mkt Cap ($M) 149 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$MM (6.9) (6.5) (7.5) (7.5) LT Debt/(Total Capital) % DD&A C$MM EV/EBITDA x EBIT C$MM (7.0) (6.7) (7.7) (7.5) PRICES/EXCHANGE RATES FY14 FY15e FY16e FY17e Interest Expense C$MM (0.2) (0.1) - - Gold Price US$/oz $1,366 $1,266 $1,300 $1,350 EBT C$MM (5.9) (5.1) (7.7) (7.5) Realized Gold Price US$/oz Taxes/Recovery C$MM (2.0) Silver Price US$/oz $22.41 $19.08 $20.00 $20.50 Net Income (reported) C$MM (6.8) (6.6) (7.7) (5.5) Realized Silver Price US$/oz Non-Recurring Items/Other C$MM US$/C$ Net Income (operating) C$MM (5.7) (5.1) (7.7) (5.5) MINE/EQUITY PRODUCTION FY14 FY15e FY16e FY17e Shares o/s (wgt avg.) MM Gold Production 000 oz EPS (operating) $/sh ($0.05) ($0.03) ($0.03) ($0.02) Total Cash Costs US$/oz P/E Multiple x n.m. n.m. n.m. n.m. All-in Sust. Costs US$/oz Cash Flow (operating) C$MM (5.8) (4.9) (7.5) (7.5) Total incl. Cash Costs + royalties All-in CCs incl. sustex, exploration, corpg&a CFPS $/sh ($0.05) ($0.03) ($0.03) ($0.02) P/CF Multiple x n.m. n.m. n.m. n.m. 250,000 $1,000 SCFP Gold Prod'n (000oz) Cash Costs (US$/oz) Cash Flow from Operations 200,000 $800 Net Income C$MM (6.8) (6.6) (7.7) (5.5) DD&A C$MM Deferred Taxes C$MM (2.0) 150,000 $600 Other C$MM (0.0) (0.0) Changes in Working Capital C$MM (5.3) (4.9) (7.5) (7.5) 100,000 $400 Cash Flow From Investing Capital Expenditure (net) C$MM (10.0) (25.0) (11.0) (80.4) Acquis./Investments C$MM ,000 $200 Other C$MM (10.0) (25.0) (11.0) (80.4) Cash Flow From Financing 0 $0 Equity Issues (net of costs) C$MM E 2016E 2017E 2018E 2019E 2020E Net Borrowings C$MM Dividends Paid & Other C$MM RESERVES / RESOURCES Reserves MMoz - Net Inc/Dec (incl FX) C$MM (18.5) 37.1 AMC/oz* US$/oz n.m. Cash at End of Year C$MM Total Resources MMoz 3.5 BALANCE SHEET AMC/oz** US$/oz 26 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 C$MM $/Sh %NAV Total Assets C$MM Curraghinalt (N.Ireland) explor. 100% $839 $ % Current Liabilities C$MM Other $0 $0.00 0% Long Term Debt C$MM Total Operating $839 $2.55 Other LT Liabilities C$MM Working capital $49 $0.15 6% Total Liabilities C$MM LT Debt $0 $0.00 0% S/Holder Equity C$MM NAV $888 $2.69 Total Liab. & S/Holder Equity C$MM Current P/NAV 0.3x Working Capital C$MM Source: Company reports, Beacon estimates March 31, 2015 Page 4 Michael Curran mcurran@beaconsecurities.ca

5 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 February 28, 2015 # Stocks Distribution Buy 45 76% Buy Total 12-month return expected to be >15% Speculative BUY 7 12% Speculative Buy Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss Hold 2 3% 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 5 8% 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