Noront Resources* (NOT : TSX-V : $2.70), HALTED
How much is the market willing to pay for exploration upside? On Friday, Noront released an initial resource estimate for its Double Eagle property in northeastern Ontario. It came in at 2.9 million tonnes with a nickel equivalent grade of 3%, representing roughly 193 million pounds of nickel equivalent resources. Noront has an enterprise value of roughly C$299 million, which implies that it is trading at C$1.55/lb of nickel equivalent resource. This represents the highest value per pound of nickel equivalent of any of the companies that Canaccord Adams follow in our nickel database. The average value per pound of nickel equivalent was C$0.3289/lb at our last calculation (May 21, 2008). Currently, FNX Mining (FNX) is trading at an enterprise value of C$1.39/lb of nickel equivalent. With a nickel equivalent grade of 3%, Noront also represents the highest grade resource of any of the companies in our database. The high grade warrants a premium valuation, but does it warrant a valuation at a premium to FNX? The Double Eagle Property is remote. Very remote. To provide truck access, the company is going to have to build over 300 km of road through wet, swampy areas. Developing an operation in a remote area with effectively no access or power infrastructure will be expensive. The company is considering directly shipping the high-grade massive sulphides (450,000 tonnes at 8.9% NiEq) to a refinery in the south to pay for the development of a concentrator on site to process the lower grade disseminated resources. The total distance needed to ship the high-grade ore to a refinery in Timmins would likely be close to 800km. This is not a cheap endeavour. Noront will lose a lot of value paying for the transportation of ore over such a long distance. Even though the shares of Noront have come off more than 60% from a high of C$7.42 per share, this can hardly be called a cheap story. This is a high-grade resource, but it is a small resource. Canaccord Adams does not view this initial resource positively
