Russ Cranswick of Research Capital has once again given the thumb’s-up to
In a research report released in late March, the geologist/mining analyst notes that Cumberland’s share price has appreciated 86% since his firm issued a detailed report on the company last September. “Cumberland has performed amazingly well despite a very poor gold market.”
Cranswick views Cumberland as an “up-and-coming producer or takeover target,” based on recent developments at the 22%-owned Meliadine West project near Rankin Inlet and the wholly owned Meadowbank property, 70 km north of Baker Lake. Both communities are in what used to be the eastern portion of Canada’s Northwest Territories.
“With both of its key projects at the prefeasibility stage and economically viable thresholds, Cumberland is becoming more attractive as a merger or takeover candidate,” Cranswick notes.
Last month, operator WMC International released an updated resource estimate for Meliadine West of 23.6 million tonnes averaging 8.5 grams (0.25 oz.) gold per tonne, or 6.5 million contained ounces. The bulk of this, 4.3 million oz., is within the Tiriruniak zone, which hosts 13.7 million tonnes grading 9.7 grams (0.28 oz.).
Cranswick notes that this resource is based on an evaluation of the project’s potential as an open-pit operation at a cutoff grade of 3 grams, rather than the underground scenario envisioned last year, when a higher cutoff grade (5 grams) was used to calculate a 3.2-million-oz. resource.
“The end result is a much larger, but looser, resource that will need much more drilling to confirm that it exists as projected, and to convert it to higher-quality resources and ultimately reserves,” he writes. “This year’s estimate includes the Pump, Wolf Main and Wolf North zones, which were previously not included.”
The junior is carried to production by the operator, and also is entitled to receive 6% of cash flow during payback.
Meanwhile, at Meadowbank, Cumberland has boosted resources to 8.8 million tonnes averaging 6.15 grams gold per tonne, which is 200,000 oz. greater than the previous estimate. The resource is divided among four zones (Third Portage, North Portage, Bay and Goose Island) and was calculated by Mineral Resource Development as part of a prefeasibility study scheduled for completion in May.
In his report, which pre-dated the resource boost at Meadowbank, Cranswick estimated that Cumberland has exposure to a total resource of 8.7 million oz. gold at its Nunavut projects, with its share amounting to 3.4 million oz. “Both of Cumberland’s advanced stage projects have very robust economics, even at low gold prices,” he writes. “This is partly because of the high grades at each, and partly because of both projects’ plans to begin mining by low-cost, open-pit methods. In addition, some of the highest grades occur near surface, which will further enhance the prospect for early payback of capital.”
Cranswick expects that, should Cumberland become a takeover target, its shares could command a premium ranging from a low of US$17.50 per oz. (based on the price paid by Cambior to acquire Gitennes’ Virgen project in Peru) to the “very hard to understand” US$74 per oz. offered by Homestake for Argentina Gold’s 60% share of the gold resource at Veladero in Argentina.
“In the middle of this range, and probably closer to what Cumberland could command, are the US$30 per ounce paid by Glamis for Mar-West and its 600,000-ounce resource at San Martin and the US$40 per ounce paid for Sutton [by Barrick Gold] and its more advanced Bulyanhulu deposit [in Tanzania].”
The analyst further speculates that Cumberland’s resources “may justify a higher premium” because they are in Canada, rather than South America, Central America or Africa, and because almost half the company’s resources are carried to production.
Looking ahead, Cranswick sees Meliadine West as a large and prospective property with the potential to become a gold camp, much like the Yellowknife, Timmins and Red Lake camps that each host from 10 to 60 million oz.
“While the Meadowbank project is a quality project that continues to marginally expand in size and is at economic thresholds, Meliadine West hosts a world class cluster of deposits that has grown in leaps and bounds.”
Cranswick has set a $5-target price for Cumberland within one year, but notes that if the company were to be taken out at the resource multiples of recent takeovers, “a fully diluted share price of $7 to $10 would not be unrealistic.”
Cumberland has 26.2 million shares outstanding (29.3 million fully diluted) and, at presstime, was trading at around $2.75. Management and insiders hold 18% of the company, which has working capital of $10.5 million.
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