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Dalradian trades at a deep discount given high quality assets: Dundee Capital

Dalradian Resources (TSE:DNA) received a lift Friday from analysts at Dundee Capital Markets, who upgraded their target price on the stock, citing improved investor sentiment and market conditions for the gold developer.

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Dalradian Resources (TSE:DNA) received a lift Friday from analysts at Dundee Capital Markets, who upgraded their target price on the stock, citing improved investor sentiment and market conditions for the gold developer.

"With a scarcity of high-quality development assets, we believe DNA is worthy of investor attention at current levels, hence our BUY rating," wrote Dundee analyst Laurence Curtis in a research note released to clients earlier today.

The firm revised its net asset value target multiple for Dalradian, resulting in an increase to its 12-month target price to C$1.50 per share, from C$1.00 previously.

Dundee said the recent C$11.3 million private placement with Ross Beaty was a "ringing endorsement" for the company, adding a well-respected shareholder to Dalradian's registry.

"Given Mr. Beaty’s past success in resource investing, we consider this investment a meaningful endorsement of DNA and its 100%-owned Curraghinalt project in Northern Ireland," said the brokerage.

"In addition, the placement provides Dalradian with a cash infusion as the company works to complete a $30MM work program in 2015."

Dundee Capital also took note of Dalradian's high quality asset base at Curraghinalt in Ireland, which it says offers "palatable capex and high grades", resulting in strong project economics in a reasonable jurisdiction.

With the gold prices lower in recent years, investors have averted the financing and development risk associated with new mines. With many explorers and developers pushed aside, some better-positioned gold producers have looked to certain developers to supplement growth pipelines, a fact supported by recent M&A activity in the sector.

Dundee gives the example of Probe Mines (TSE:PRB) being acquired, while Premier Gold's (TSE:PG) Hardrock project garnered a joint venture partner.

"We expect producers with healthy balance sheets to continue stalking undervalued developers given the limited number of high-quality projects available," said Curtis, adding his belief that Daldradian is one of these high quality assets.

Based on the recent acquisition of Probe, Dundee maintains that Dalradian remains deeply discounted compared to its peers, estimating that Dalradian currently trades at $29 an ounce, or 25 percent of Probe's takeout value.

"While we wouldn’t expect Dalradian to garner a comparable valuation in the absence of a takeout scenario, we consider the two companies to be comparable given both focus on higher grade underground deposits.

"In addition to hosting a larger resource, Dalradian's is notably higher grade. Despite the reasonable resource defined by Probe, the project lacked any tangible project economics," Dundee concluded.

The Curraghinalt project has a completed preliminary economic assessment under its belt, with work on a pre-feasibility study commencing next month.

Shares of Dalradian advanced 4.6 percent to C$1.13 on Friday, up almost 53 percent year-to-date.

Quick facts: Dalradian Resources

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AIM:DALR
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