Welcome to the San Gold HUB on AGORACOM
San Gold Corporation - one of Canada's most exciting new exploration companies and gold producers.
Message: TD WATERHOUSE
Keep in mind TD"S coverage JULY 15th 2009
Action Notes
25 of 34 Company Profile San Gold Corp. is a Manitoba-based emerging mid-tier gold producer that is focused on developing new mines in the Rice Lake Greenstone Belt of Manitoba. 10 2007 2008 2009 20 30 40 50 60 70 80 10 20 30 40 50 60 70 SGR-V: Price 80 Please see the final pages of this document for important disclosure information. San Gold Corp. (SGR-V) C$2.24 Hinge Zone Bulk Sample Hints at Production Potential Event Yesterday, San Gold released results from the initial bulk sample program at its high-grade Hinge Zone deposit in Rice Lake, Manitoba, recovering 5,938 gold ounces from 11,762 tons mined at an average recovered grade of 18 g/t (0.53 opt). Impact - NEUTRAL While the completion of the bulk sample took longer than anticipated, the results were in-line with our expectations. We note that the average recovered grade, which largely comprised ore from development segments, was materially higher than our modelled assumption (0.45 opt). In addition, mill throughput was achieved at a much higher rate versus our estimate, but the company believes that further mill tests will be required to determine if the peak rates achieved in the sample are sustainable for the full mill circuit. In our view, the results form a positive indication of the Hinge Zone's production potential and suggest San Gold is quickly approaching the transition to commercial production in H2/09. However, at this stage, we make no changes to our estimates. We reiterate our 12-month target price of $3.50/share and maintain our BUY recommendation. Details •
The Hinge Zone bulk sampling program recovered 5,938 gold ounces
from 11,762 tons mined and processed, from stoping grades of 21.7 g/t (0.63 opt) and development grades of 16.9 g/t (0.49 opt) for an overall average recovered grade of 18.0 g/t (0.53 opt). We assumed a bulk sample of 12,000 tons, averaging 15.4 g/t (0.45 opt) and recovering 5,400 ounces.
•
The company estimates that the majority of future ore will be derived
from the stoping category, which appears consistent with the long-term average recovered grade in our model of 22 g/t.
•
Direct operating costs for the sample averaged $78/ton, excluding capital
expenditures and exploration drilling, matching our modelled assumption.
Gold & Precious Minerals
Recommendation: BUY
Unchanged
Risk: HIGH
12-Month Target Price: C$3.50
Unchanged
12-Month Total Return: 56.3%
Market Data (C$)
Current Price $2.24
52-Wk Range $0.57-$2.56
Mkt Cap (f.d.)($mm) $612.6
Dividend per Share $0.00
Dividend Yield 0.0%
Avg. Daily Trading Vol. (3mths) 1,720,432
Financial Data (C$)
Fiscal Y-E December
Shares O/S (f.d.)(mm) 273.5
Float Shares (mm) 215.1
Net Debt/Tot Cap 0.0%
NAVPS (current)(f.d.) $2.42
Resources (mm oz) 1.5
Working Cap ($mm) $19.4
Estimates (C$)
Year
2007A 2008A 2009E 2010E
EPS (f.d.) (0.19) (0.15) 0.00 0.16 CFPS (f.d.) (0.17) (0.14) 0.05 0.32 Valuations Year
2007A 2008A 2009E 2010E
P/E (f.d.) nmf nmf nmf 14.0x P/CFPS (f.d.) nmf nmf 44.8x 7.0x Supplemental Data Year
2007A 2008A 2009E 2010E
Gold Prd (koz) nmf nmf 45.5 119.2 Cash Cst ($oz) nmf nmf 693 424 All figures in C$, unless otherwise specified. Daniel Earle Shey Ylonen, CFA (Associate) Action Notes July 15, 2009
Equity Research 26 of 34 •
Total expenditures to build and develop the Hinge Mine were approximately $6.5 million, which the
company reports were almost entirely offset by the proceeds from the bulk sample.
Exhibit 1. San Gold Corp.: Hinge Zone Bulk Sample Summary
Mined Production
(tons) (g/t) (opt) (oz)
Stope 2,738 21.7 0.63 1,737
Development 9,024 16.9 0.49 4,448
Total 11,762 18.0 0.53 6,185
TDN Estimate 12,000 15.4 0.45 5,400
Processing Results Actual TDN Est.
Gold Ounces Recovered (oz) 5,938 5,130
Gold Recovery (%) 96% 95%
Average Throughput per Hour (tons) 50 25
Maximum Throughput Achieved (tons) 80
Operating Cost/Ton (C$) $78 $78
Operating Cost/oz (C$) $184
Operating Cost/oz (US$) $158
Au Grade
Source: Company documents, TD Newcrest estimates.
Exhibit 2. San Gold Corp.: Our Estimates
2009E 2010E 2011E 2012E
EPS (f.d.)
$0.00 $0.16 $0.24 $0.41
CFPS (f.d.)
$0.05 $0.32 $0.38 $0.56
Gold Prod. (oz)
45,569 119,206 161,215 220,255
Cash Costs (US$/oz)
$693 $424 $303 $264
Source: TD Newcrest estimates.
Outlook
We expect the following developments over the balance of the year:
•
Ongoing drill results with 8 rigs turning at present
•
Resource estimate for the Hinge Zone – Q3/09
•
Property-wide resource estimate – Q3/09
•
Declaration of commercial production – H2/09
Valuation
We calculate that San Gold is currently trading at 0.93x corporate NAV5% and an implied EV/oz multiple of
$342/oz. This compares to its peer group of gold companies in our coverage universe, which currently trade at
an average of 0.97x NAV5% and $156/oz, respectively. We note that in calculating the EV/oz for San Gold,
no credit is given for the potential resources associated with the Hinge Zone. Therefore, we expect the
company to trade closer to its peers on a per-ounce basis with the release of a resource estimate for the Hinge
Zone, along with a property wide estimate, in Q3.
Action Notes
July 15, 2009
Equity Research
27 of 34
Exhibit 3. San Gold Corp.: P/NAV Peer Comparison
0.00
0.40
0.80
1.20
1.60
Northgate
Minerals
San Gold
Jaguar
Mining
Minefinders
Alamos Gold
Lake Shore
Gold
Gammon
Gold
P/NAV
Average = 0.97x
Source: TD Newcrest estimates.
Justification of Target Price
We generate our target price from the application of a 1.4x multiple to our corporate NAV5% which we
calculated using a long term gold price of US$900/oz and USD/CAD exchange rate of $0.85. Companies that
are expected to achieve rapid growth with declining costs in politically safe jurisdictions have typically
commanded premium multiples. This is especially true of those with high-grade projects, like San Gold, which
tend to benefit from greater exploration potential and lower capital and operating costs per ounce than their
low-grade peers.
Key Risks to Target Price
The main risks facing the company include forecast, financial, technical and political risks. Among other
things, these include risks related to the gold and fuel prices, the governing fiscal and legislative regimes, the
timing of key developments, market conditions, capital and operating costs, foreign exchange rates, resources
and reserves, operating parameters, permitting, environmental, indigenous peoples, and staffing and key
personnel retention.
Investment Conclusion
We are encouraged by the release of bulk sample results that are in-line with our expectations and which
confirm the Hinge Zone's significant potential for low-cost gold production. With the expectation of further
positive drill results and steady progress towards commercial production, we believe San Gold is in position to
benefit from significant revaluation as its makes the transition to a mid-tier gold producer. We reiterate our 12-
month target price of $3.50/share and maintain our BUY recommendation.
July 15, 2009
Action Notes
Equity Research
28 of
Equity Research
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