Original-Research: Desert Gold Ventures Inc. (von GBC AG): BUY
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Original-Research: Desert Gold Ventures Inc. - from GBC AG
02.08.2024 / 08:01 CET/CEST
Dissemination of a Research, transmitted by EQS News - a service of EQS
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Classification of GBC AG to Desert Gold Ventures Inc.
Company Name: Desert Gold Ventures Inc.
ISIN: CA25039N4084
Reason for the research: Research Report (Initial Coverage)
Recommendation: BUY
Target price: 0.311 USD
Target price on sight of: 31.12.2025
Last rating change:
Analyst: Matthias Greiffenberger, Marcel Schaffer
Strategic Investment opportunity in Prolific Gold Region with Significant
Upside Potential. Heap Leach Mine and Significant Resource Expansion Plans.
Desert Gold Ventures Inc. could represent an attractive investment due to
its strategic location in a prolific gold region, substantial resource base,
and ongoing exploration efforts. The company's potential for significant
cash flow from the heap leach mine, combined with its experienced management
team and strong financial management, underscores its potential for
substantial growth. The current low market valuation, compared to the target
price, offers significant upside, particularly with anticipated positive
developments in 2024.
Desert Gold Ventures Inc. is focused on the SMSZ Project in Mali, a region
known for significant gold deposits. The project spans 440 km² along the
Senegal Mali Shear Zone and encompasses over one million ounces of gold,
with measured and indicated mineral resources of 310,300 ounces and inferred
mineral resources of 769,200 ounces. The company has planned an extensive
30,000-meter drilling program for 2024 aimed at expanding the current
resource base and identifying new economic grade targets. An updated
resource estimate is expected in Q4 2024.
Strategic location and acquisition potential: The Kenieba Window, an
offshoot of the Birimian Greenstone Belt, is known for high-quality gold
resources, averaging 2.22 g/t, and significant market valuations. Major
mergers and acquisitions in the BGB over the past decade have shown an
average resource of 1.81 million ounces of gold and an average acquisition
price of US $66 per ounce. Desert Gold Ventures' SMSZ Project, with 1.08
million ounces of gold at 1.14 g/t and valued at US $9 per ounce, presents a
notable opportunity. With a current market capitalization of about $10
million, Desert Gold Ventures could be valued at $71.4million if its assets
were acquired at recent average prices per ounce. After deducting warrants
and options, the equity valuation is $69.5 million. However, due to Desert
Gold's average grade of 1.14 g/t being lower than the 2.22 g/t average of
other transactions, we apply a 50% discount. This results in a valuation of
$35 million, or $0.155 per share. As the grade improves, we plan to reduce
the discount, increasing our valuation. Note that at a cutoff grade of 1.0
g/t gold, Desert Gold's resource amounts to 715,000 oz of gold at a grade of
1.86 g/t, representing a 63% increase in gold grade.
NAV: Desert Gold Ventures has a combined resource of 1.08 million ounces of
gold at an average grade of 1.15 g/t and a cutoff grade of 0.4 g/t. Note
that at a cutoff grade of 1.0 g/t gold, Desert Gold's resource amounts to
715,000 oz of gold at a grade of 1.86 g/t, representing a 63% increase in
gold grade. Compared to the larger, higher-grade Fekola Mine, Desert Gold
shows promise for substantial improvement with successful exploration. The
Fekola Mine, acquired by B2Gold in 2014, has produced three million ounces
of gold by April 2023 and expects to produce 470,000 to 500,000 ounces in
2024 at operating costs of $835 to $895 per ounce and all-in sustaining
costs of $1,420 to $1,480 per ounce. Benchmarking against Fekola, the
theoretical value of Desert Gold's resources at Q1 2024 gold prices ($2,070
per ounce) would be $2,234.6 million, though typically only 5% to 10% of
this value is considered in acquisitions, translating to $111.7 million.
After accounting for AISC and initial construction costs, the net value of
Desert Gold's resources is estimated at $204 million. Applying a 70%
discount and subtracting the value of outstanding warrants and options,
Desert Gold's assets are valued at approximately US $59 million, or $0.264
per share.
Based on the NAV valuation of $0.264 per share and the peer group valuation
of $0.155 per share, we derive a combined target price of $0.209 per share.
Given the substantial upside potential relative to the current share price,
we assign a BUY rating.
Potential heap leach mine: Desert Gold is evaluating the feasibility of
building a small heap leach mine, which could generate significant cash
flow. A preliminary economic assessment (PEA) is set for completion by Q4
2024, potentially transforming the company's financial outlook. This value
depends on the mine's construction and production, with many assumptions due
to limited information especially concerning ore processing and gold
recovery rates. The PEA should address these concerns in detail. We expect
the small heap leach mine in Barani East to produce 15,000 to 20,000 ounces
per year, with a mine life of over ten years based on current oxide
resources. Financial projections, at a gold price of $2,300 per ounce,
suggest annual revenue of about $40 million. The project benefits from being
in a low-cost jurisdiction and employing simple mining methods, which
results in an estimated build cost of $15 million. With high-grade ores and
anticipated recovery rates, we expect the project to yield more than 50%
margins, translating to $20 million in annual free cash flow. With a project
valuation of $76 million, we apply a 70% discount due to its future timeline
and uncertainties. Clarity is expected after the PEA release in Q4 2024, at
which point we will reduce the discount. After the 70% discount, the
project's value is $22.8 million, or $0.101 per share with 225 million
shares outstanding. We add this value separately as the heap leach mine is
relatively small compared to Desert Gold Ventures' total assets and
resources.
If this project is successfully financed and comes to fruition, the US
$0.101 per share valuation would be added to the average valuation based on
NAV and peer group of US $0.209 per share. This would result in a target
price of US $0.311 per share. Given this significant upside potential, we
assign a BUY rating to the stock.
You can download the research here: http://www.more-ir.de/d/30341.pdf
Contact for questions:
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Beim oben analysierten Unternehmen ist folgender möglicher
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Date and time of completion of the research report: 01.08.2024 (13:00)
Date and time of the first disclosure of the research report: 02.08.2024
(08:00)
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