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Xanadu Mines retains speculative buy recommendation from Bell Potter; price target raised

Xanadu's recently upgraded open pit resource underpins a proposed conventional open pit mining and processing operation.
project area
Valuation raised by 6% to 55 cents per share

Xanadu Mines (ASX:XAM) recently completed the open pit scoping study on its 76.5% owned Kharmagtai Copper-Gold Project in Mongolia, confirming that the deposits are of global scale with considerable upside.

Bell Potter Securities believes the positive study is only an interim one with more significant findings expected to progressively enhance Kharmagtai’s standing and advantages over its peers.

Following is an extract from Bell Potter’s research report:

The scoping study was prepared by CSA Global and while it validates the company’s strategy of exploring for large, high value porphyry copper-gold systems in Mongolia, as there are advantages of infrastructure and proximity to advanced industrial nations and manufacturing which contribute to favourably lower capital and operating costs, it is an interim one without published production forecasts.

XAM’s recently upgraded open pit Resource underpins a proposed conventional open pit mining and processing operation treating 20Mtpa (double our previously assumed size) which we estimate could yield ~54ktpa of copper and ~118kozpa of gold in concentrate at average all in sustaining costs of ~US$1.73/lb (after co-product gold credits) based on our assumed average ore grade of 0.31% copper and 0.26g/t gold (0.45% copper equivalent).

Investment thesis: Spec. Buy, Valuation $0.55/sh (prev. $0.52)

The Kharmagtai open pit Scoping Study confirms the company has one of the world’s most attractive undeveloped copper-gold projects.

While we feel ASX-imposed constraints on the reporting of some of the Scoping Study outcomes has detracted from its impact, the Study is only interim, with more significant findings expected to progressively enhance Kharmagtai’s standing and advantages over its peers.

Our diluted NPV-related valuation has been increased by 6% to $0.55/sh, even after more dilution from the currently lower share price, and it assumes additional equity is raised to enable XAM to continue drilling to maintain Resource growth momentum and to proceed with more advanced mining studies.

XAM should benefit from the recent corporate changes designed to enhance market recognition and aide an overdue rerating driven by Kharmagtai’s inherent value and considerable upside, especially from the scope to unlock significant additional near-term value from the near surface oxide gold potential.

Speculative Buy recommendation retained.

Disclosure: Bell Potter Securities acted as Lead Manager for the $10m placement in June 2018 and received fees for that service.

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