Beer&Co valuation of De Grey implies share price upside

By Trevor Hoey. Published at Feb 23, 2017, in Small Caps

Shares in De Grey Mining (ASX:DEG) have increased nearly 50% since the start of 2017, but there has been plenty of strong news flow coming from the company, including a trebling of its Mt Berghaus gold resource and the strategic option to acquire the Indee gold project, an initiative that would significantly increase the group’s resources and reserves, provide access to essential infrastructure and lead to increased production.

On this basis, Pieter Bruinstroop from Beer&Co sees the budding Western Australian gold producer as substantially undervalued as can be seen from his modelling in the table below.

It should be noted here that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

Emerging 100,000 ounce plus producer with first gold in fiscal 2019

Based on Bruinstroop’s projections a combined Indee-Turner River project could hit maiden production in fiscal 2019 with production of 12,350 ounces. However, based on his modelling in the following year, production would jump to circa 140,000 ounces.

While this level of production wouldn’t be maintained in the ensuing two years, he sees the prospect of large-scale production in the vicinity of 170,000 ounces per annum occurring out from 2023-24.

The following table indicates Bruinstroop’s production estimates.

Some of the key takeaways noted by Bruinstroop were the fact that DEG now controls over 800,000 ounces from 16 million tonnes grading 1.5 grams per tonne in resources. With this acquisition he is of the view that DEG transitions from explorer to a gold project developer with granted mining licenses.

Substantial news flow to drive DEG share price

The broker expects a series of resource upgrades over the balance of 2017, along with results of a scoping study, followed by a feasibility study which it expects will be completed by the end of 2017.

The completion of these milestones are prospective share price catalysts, and as such DEG is shaping up as a news flow driven story in 2017 with the potential for its shares to push up towards Beer&Co’s valuation, particularly as the company is more readily recognised as an emerging producer rather than a production play.

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S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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