Predictive Discovery Ltd (ASX:PDI) has substantial upside on the exploration front, both through extensions of Bankan NE and new discoveries in Guinea, according to stockbroker Argonaut’s initiation report.
As a sum of parts, Argonaut values Predictive at A$219 million, or A$0.16 per share.
This valuation includes Argonaut’s mining scenario for the Bankan Project, a valuation of the Guinean Government's potential free-carry interest, a nominal exploration valuation for Predictive’s portfolio, and current cash and equivalents.
Corporate overheads and equity dilution are also included.
The following is an extract from Argonaut’s initiation report:
On our numbers, PDI is slightly under-valued based on a development scenario of a Bankan NE open-pit alone. With a strong recent track record of exploration success, we see substantial upside on the exploration front, both through extensions of Bankan NE and new discoveries. We initiate with a valuation of $0.16 per share and a Speculative Buy recommendation.
Onto a Good Thing
Exploration Success: Just over one year since the first diamond drillhole was completed at Bankan NE, the project is shaping up to be a significant deposit in terms of scale and potential economics. Bankan NE may be the tip of the iceberg for PDI, with numerous other prospects showing early potential.
Guinea as an Investment Jurisdiction: Guinea has a chequered history in terms of investment appeal. Throughout the pandemic a strong mining sector has enabled Guinea to fare better than most. While jurisdiction risk remains a key risk for the project, we believe that recent strong mining sector performance alongside multiple new mine developments in-country signals the governments intent to facilitate further foreign investment.
Argonaut’s Bankan Mineralisation Scale Estimate: Using drillhole data reported in ASX filings we have estimated an order of magnitude mineral inventory of 1.95 to 2.65Moz Au (midpoint 2.3Moz Au) at 1.7 g/t for Bankan NE to a drill defined depth of 300 m, and 180koz to 245koz Au (midpoint 210koz Au) at 1.3 g/t Au for Bankan Creek to a drill defined depth of 200 m. Our order of magnitude inventory is unconstrained by economic parameter such as pit shells, so will likely overshoot PDI’s MRE. In our estimate, four recent diamond holes on the edge of the zone account for ~500koz of mineralisation attributed to Bankan NE, in-fill drilling will be required to confirm continuity here.
Argonaut’s mining scenario and valuation: Argonaut has developed a Bankan NE mining scenario as a basis for valuation. Using boilerplate assumptions, we derive a NPV10 for the Bankan NE project of A$280M. It should be noted that these assumptions are built upon presumption of a pre-Resource deposit and therefore our valuation is extremely speculative in nature. Key risks are associated with the early stage of the project, metallurgy, and jurisdiction risk.
We initiate with a valuation of $0.16 per share and a Speculative Buy recommendation.