Phoenix Gold (ASX: PXG) has received a buy recommendation from Veritas Securities, and a target price of $0.55.
This target price is almost triple Phoenix's last traded price of $0.21.
The following is an extract from the report.
CONSOLIDATE AND CONQUER
PXG is a gold mining company focused on exploring and developing a suite of projects located along the prospective (multiple +1Moz Au deposits) Kunanalling and Zuleika Shear zones, north of Coolgardie and west of Kalgoorlie.
The company has combined fragmented data sets, after amalgamating previously unconsolidated tenure along the shear zones and are now following up with deeper drilling (previous average drill depth is 48m).
Upon acquisition the projects held combined JORC resources of 0.6Moz Au. A re-interpretation of existing data (+0.4Moz) additional drilling and further acquisition has increased the resource in 12 months to 1.68Moz Au.
PXG are undertaking a 50,000m drill program in CY12. We expect the company to add significant resources at Castle Hill; Ora- Banda, and from greenfields targets, leading to a further resource upgrade to +2Moz Au and a maiden reserve of 0.5Moz Au by the end of CY12.
The management team have a combined 125 years of mining experience and have spent considerable time in the eastern goldfields of WA. Importantly, management brings an understanding of the regional geology, long term relationships with both local service providers and mine management.
NEAR TERM PRODUCTION
PXG have toll milling agreements with the nearby Bullant, Greenfields and Paddington mills and have already produced gold in DQ11 from stockpiled ores. We see further ore sales in 2012 from two existing open cuts within the PXG tenure.
The current 2012 exploration budget (50,000m) of A$4-5m will be funded with existing cash of approximately A$8.0m (includes A$7m from options in Feb-12. The toll treatment and sale of current surface stockpiles and exposed or is expected to net $7- $10m in cash flow to PXG over CY12.
RECOMMENDATION AND VALUATION
PXG have multiple gold projects and tenements along two highly productive shear zones. We are encouraged by the prospectivity of this area, particularly below 50-80m, and the potential to aggregate smaller deposits into economic operations.
We initiate coverage with a BUY recommendation and place a target price of $0.55 per share, based on a probable increase in resources to +2Moz Au and a peer average EV/oz valuation of $40-$50/oz.