Canaccord Genuity has initiated coverage on emerging gold producer Toubani Resources (ASX:TRE) with an initial price target of $1.25, over 330% higher than its current share price.
Toubani is advancing its 2.2-million-ounce Kobada Gold Project in Mali, where it is currently working to complete an updated Definitive Feasibility Study (DFS).
The junior explorer currently has a market capitalisation of $67.2 million at a share price of $0.29.
Canaccord anticipates the updated DFS will be out in the December quarter and will outline an enlarged/improved project versus historical studies, ahead of finalisation of a mining convention, project financing, and final investment decision in 2025.
Canaccord says a large proportion of the existing resource is hosted in near surface, free-dig, oxide mineralisation, which supports low capital and operating costs.
“We anticipate the updated study to improve upon and enlarge previous project designs, with our modelling suggesting Kobada can support a 10-year, 6-million-tonne-per-annum project producing >155,000 ounces per annum,” analysts Reg Spencer, Paul Howard and William Jones say in a research note released late last week.
Canaccord’s modelling assumes capital expenditure of US$230m ($349.5 million) (industry benchmarking) and modelled all-in sustaining costs of US$1,215 an ounce, which includes a ‘worst case’ royalty rate of 11%.
Spot gold is currently trading around US$2,760 an ounce, according to ABC Bullion.
“We see the current project timetable as achievable, with first gold production possible in late 2026,” the analysts note.
Importantly, the analysts believe these “robust economics” provide resilience to changes to the Mali Mining Code.
Mali’s new Mining Code provides for increased state participation in the project up to 30% (including 10% free carried interest, plus 5% to local Malian interests). The new code also details increased royalty rates up to 11%.
Under the new code, projects individually negotiate a Convention Agreement which determines the specific investment/fiscal terms that govern any development.
“Based on our modelled development scenario and our gold price deck (gold forward curve), we estimate an unrisked NPV10% (100%) of US$980m and IRR (internal rate of return) of >70%,” Spencer, Howard and Jones note in the report.
“In our view, the potential for such strong economics still provides TRE with a highly valuable, majority project interest, even under a ‘worst case’ scenario of full government participation and high royalty.
“Our modelling assumes this ‘worst case’ but given a Mining Convention is yet to be finalised, there may be some upside to our conservative valuation assumptions.”
Canaccord’s price target of $1.25 is based on a “heavily risked” NPV10% (assumed 65% Toubani interest and 11% royalty rate).
The analysts believe further valuation support can be found with average resource multiples for recent West African gold project mergers and acquisitions implying a ~US$150m valuation ($1.00 per undiluted share).
Toubani has recently attracted increased investment interest, with Sydney-based fund manager Paradice Investment Management becoming a substantial shareholder, and small cap investment firm Nero Resource Fund raising its substantial interest.
CEO Phil Russo told Mining.com.au earlier in October that Toubani’s “institutional investors run very deep now towards 50% of total shares outstanding”.
Write to Angela East at Mining.com.au
Images: Toubani Resources
