Hunter Capital Advisors has initiated coverage on Xanadu with a speculative buy recommendation and a price target of 45 cents.
Following is an extract from Hunter’s initiation report on Xanadu:
Tier 1 Copper-Gold Project: In terms of copper deposits, majors like them big. Kharmagtai contains an open-pit indicated and inferred resource of 598 million tonnes containing 1.9Mt copper and 4.3 million ounces gold. Kharmagtai has also enviable characteristics: now an established copper/gold mining jurisdiction (Oyu Tolgoi, Erdenet and Tsagaan Suvarga), benign topography and environmental impediments, higher grade portion close to surface amenable to open pit mining and long mine life. Finally, Kharmagtai is ideally located on the doorstep of the world’s largest copper consumer.
Gold Bonus: The Kharmagtai porphyry deposit and other porphyry targets lie under a highly significant gold oxide zone. We estimate that this gold mineralisation could easily contain in excess of 1.5 million ounces. Such resource could be quickly developed and generate the cash flow to progress the underlying copper-gold deposit.
Low initial capital and low capital intensity: while large porphyry deposits typically require development capital in the order of a few billion US$, Kharmagtai initial capital for developing the open pit resource is estimated at US$484 million. The capital intensity for the project is also highly competitive at US$8,100/tpa Cu Eq., compared to the average of 60 projects at US$13,300/tpa Cu Eq.
Copper Fundamentals: We believe the lack of a meaningful pipeline of future supply could set the stage for sustainably higher prices for copper as restrained capex and a low level of official inventories could cause supply shortages.
Share Register Tightly Held: The top five shareholders combined with the Board of Directors and management represent more than 50% of the share register.
Valuation: Considering the competitive advantages of its flagship project and the excellent prospectivity of its project portfolio, we consider that XAM should reach a value (market value or transaction value) in the order of A$375 million or $0.45 per share. This price target is inclusive of an assumed capital raising of A$15 million for the on-going development of the Kharmagtai project.