Scotia Capital Wednesday initiated coverage of Queenston Mining (TSX:QMI), suggesting its Kirkland Lake gold project is an attractive acquisition target to both joint venture (JV) partner Kirkland Lake Gold (TSX:KGI), and Kirkland's majority shareholder Agnico-Eagle Mines.
"The company holds the largest assembled land package in the prolific Kirkland Lake Gold Camp in Ontario, which has produced over 40 million ounces (Moz) of gold, and two projects in Quebec, located adjacent to Agnico-Eagle Mines Limited's. . .Lapa deposit," said Scotia Capital analysts Ovais Habib and Mike Hocking.
Located in Ontario along the border with Quebec, the Kirkland Lake Gold Camp is believed to host nine greater than one-million-ounce gold deposits.
The analysts also cited Queenston's well-financed, aggressive exploration and evaluation program this year. "Queenston is an aggressive and efficient explorer," they observed.
Scotia Capital gave Toronto-based Queenston a "1-Sector Outperform" rating and a one-year target price of CA$8.75 per share.
"The company is well underway to building a targeted 6 Moz of gold in five deposits within the Kirkland Lake Gold Project (eastern section), which would ultimately feed a central milling facility," Scotia Capital noted. A preliminary economic assessment on the Upper Beaver gold-copper project is scheduled for release during the current quarter.
Scotia's base-case scenario for the Upper Beaver deposit incorporates 1.5M mineable ounces of gold and 67 million pounds (Mlb) of copper that would be produced over life-of-mine as a byproduct. "We expect the Upper Beaver project to produce ~137,500 oz of gold and 5.9 Mlb of copper per year at a total cash cost of US$627/oz on average starting in 2016."
Meanwhile, Queenston is well underway with its ongoing underground development and exploration program with JV partner Kirkland Lake Gold on the Kirkland Lake Gold Project.
"The Kirkland Lake Gold property package contains seven historic mines (Upper Beaver, McBean, Upper Canada, Bidgood, Moffat Hall, Morris and Sylvanite) that have produced 3.6 Moz at an average grade of 10.6 g/t Au," said Scotia.
The analysts declared, "We believe Queenston's management team has effectively and efficiently propelled the Kirkland Lake Gold project from an early-stage exploration story into a development stage project."
"In our opinion, the management team has extensive experience in advancing gold mining projects and is well qualified to take the Kirkland Lake gold project through to the development phase," they added.
In addition to Kirkland Lake, Queenston has a 100% interest in the Pandora project in the Cadillac Gold Camp in Quebec, near the border with Ontario, immediately west of Agnico-Eagle's Lapa Mine, with its annual production of 115,000 gold oz.
"Since 2007, Queenston has grown its total gold resource base by 2,700%," the analysts noted, adding the company has 1.46 Moz of gold in the indicated category. "Based on our analysis of the drilling results released to date from the Kirkland Lake Gold project, we estimate the company will expand its current global resources of 3.4 Moz to ~4.7 Moz in the next 12 months."
The analysts said, "We believe that Queenston is sufficiently funded for exploration and development in 2012. We assume preproduction capital expenditures of ~$375M for the mining operation at Upper Beaver, which is expected to be raised in 2015." The company now has CA$85M in cash.
Dorothy Kosich, Mineweb