BMO – Probe Mines – Borden Lake Resource Update Neutral to Estimates; Higher-Grade Scenario Examined

Event

The company provided a resource update on its 100%-owned Borden Lake deposit. The resource estimate showed total global in-pit resources of 131Mt grading 1.02g/t gold (4.3Moz) using a cut-off grade of 0.5g/t gold, growing 10% in ounces and 12% in grade over the previous estimate. We also examine a high-grade scenario for the company using a 1.0g/t gold cut-off grade.

Impact

Neutral. Relative to our previous resource assumption, the in-pit resource showed significantly higher grade. Upon adopting the in-pit resource at a 0.5g/t cut-off grade into our DCF together with an increased strip ratio assumption, BMO Research’s 10% NAV estimate at spot gold increased 1%.

Forecasts

LOM production at Borden Lake could be approximately 3.4Moz gold at an average total cash cost of ~US$564/oz gold. Production is forecast to commence in 2016, averaging ~260koz gold per year over a 13-year mine life.

Valuation

Probe’s shares trade at a P/NAV of 0.70x (30% discount) to the 10% NAV estimate of US$3.24/share using the spot gold price of US$1,669/oz. Junior and emerging gold producers in BMO Research’s coverage universe trade, on average, at a 22% discount (0.78x P/NAV) to 10% NAV estimates.

Recommendation

BMO Research continues to rate Probe Mines Market Perform (Speculative).