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Xanadu Mines Ltd: Broker maintains Speculative Buy, increases price target

Bell Potter noted: "We have revised our equity diluted valuations of XAM to incorporate XAM’s effective increase to 76.5% of Kharmagtai; enhanced gold potential at Oyut Ulaan; and reduced dilution of increased share price on an assumed equity raising over the next year."
Xanadu Mines Ltd: Broker maintains Speculative Buy, increases price target

Xanadu Mines Ltd (ASX:XAM) is the subject of a research report from Bell Potter. The broker retained its Speculative Buy rating and increased its forward valuation of the company.

Here is a summary of the report:


Oyut Ulaan also has consistent gold-rich mineralisation

XAM’s Oyut Ulaan Project, which is located about 260km east of Kharmagtai, has only had rather sporadic exploration over the past few years as most of XAM’s effort has rightly been directed at Kharmagtai.

Consistently good exploration results at Oyut Ulaan, particularly over the past three months have considerably elevated its status to a highly attractive project.

Successive drilling and related exploration programs at Oyut Ulaan have shown that it contains significant copper-gold mineralisation associated with broadly similar porphyries and related skarn, breccia pipe and stockwork systems to Kharmagtai.

Recent trenching and surface sampling at Oyut Ulaan has identified extensive and consistently high grade gold mineralisation in a large epithermal gold vein zone called the Bavuu Zone that geophysics indicates is within a major zone about 4.5km long and 300m wide.

XAM plans further systematic, cost-effective surface exploration at Oyut Ulaan to define prioritized drilling targets.


Drilling underway again at Kharmagtai with dual focus

Drilling has resumed at Kharmagtai with the dual aim of increasing the shallow high grade (circa 0.8% - 1% copper equivalent) copper-gold porphyry mineralisation (that already contains a Resource of over 2 million ounces of gold) and also evaluating the increasingly significant epithermal gold mineralisation.

XAM’s drilling will target a fourth shallow gold-rich porphyry copper centre and potentially viable near surface low grade epithermal gold targets that could potentially represent a separate, modest scale gold “starter” project.

The epithermal gold mineralisation may be low grade but it is still potentially very attractive given its nature and the low cost environment in Mongolia.


Copper price recovering, gold price moving up decisively

Major copper production cutbacks announced at the end of 2015 have helped to get the market back into better balance, which has resulted in the copper price rebounding by 16% from its low in January 2016.

We continue to believe the medium and longer term supply/demand fundamentals for copper will remain tight, leading to firmer prices.

The gold price has recently moved up very decisively, rising to a 15-month high of over US$1,300 per ounce in response to weakness in the US dollar and the market’s perception that the US will keep interest rates at current levels for a more extended time given subdued growth there.

Gold’s steep rise in recent days suggests there is a renewed interest in the metal from traders and investors in preference to other forms of investment.


Investment thesis: Spec. Buy, Valuation $0.51/sh (prev. $0.35)

Further significant gold exploration results at Oyut Ulaan in particular over the past three months have confirmed its similarity to the gold-rich nature of the highly mineralised porphyry district at Kharmagtai.

Impressive recent results means both districts now host various styles of copper-gold and gold mineralisation that warrant further evaluation, particularly as the occurrences of gold mineralisation show potential to become potential “starter” projects in their own right.

We have revised our equity diluted valuations of XAM to incorporate XAM’s effective increase to 76.5% of Kharmagtai; enhanced gold potential at Oyut Ulaan; and reduced dilution of increased share price on an assumed equity raising over the next year.

Our 12-month forward valuation is raised by 46% to $0.51/sh.

Speculative Buy recommendation retained.

 

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