Strong tailwinds giving juniors, project developers room to run – research note – by Henry Lazenby (Mining – May 26, 2016)

TORONTO ( – About halfway through the first quarter, analysts at Dundee Capital Markets noticed that exploration companies that had weeks earlier appeared to be dead in the water, as investors abandoned all but a handful of names, were steadily starting to leave the laggards behind as a combination of the gold price rally and improved investor sentiment blew wind in their sails.

On the back of a 17% rise in the price of gold during the first three months of 2016, the coverage universe of 47 resource stocks that Dundee tracked on an enterprise value per ounce (EV/oz) metric, based on a total mineral inventory (TMI) had risen steadily, helping analysts to differentiate those companies that had the benefit of wind in their sails from the idlers and providing a good measure of the potential upside that the market was willing to pay for quality gold opportunities.

In a research note published on Thursday, research analysts and co-authors Ron Stewart and Erik Bermel noted that the average EV/oz had so far this year improved from $13/oz to $32/oz, reflecting improved investor sentiment toward exploration-focused companies which, in turn, reflected the 15% year-to-date improvement in the gold price to about $1 220/oz.

The analysts noted that Dundee’s universe displayed a wide range in valuation from the lowest quartile that averaged about $5/oz, to the upper quartile group that averaged about $70/oz and peaked at more than $150/oz.

Similarly, the price to net asset value (P/NAV) of developers in Dundee’s universe had increased by about 75% from 0.3 times to 0.52 times. “This reflects an improvement in the economics of the project on the back of the increased commodity price,” the analysts argued.

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