TORONTO (miningweekly.com) - TSX-V-listed Noront Resources, which has projects in Canada’s Ring of Fire region, has seen its share price plummet by 50% over the past year, in an environment of higher commodity prices and bigger risk appetites from investors, leading an analyst to call the stock undervalued.

Over the same period, the S&P/TSX-Venture Composite index has shot up by around 40% in value.

Dundee Securities analyst Rod Cooper said on Thursday that Noront was a typical example of a junior that had found an attractive target in a remote location, only to be “shocked” once the company ran some numbers on the likely costs of building a mine there.

In a preliminary assessment study of the Eagle’s Nest deposit, located in the St James Bay lowlands of Northern Ontario, released in September, Noront pegged the initial capital investment for a mine at between $600-million and $625-million.

The capital expenditure payback would be between three and four years on an 11-year mine life, which still looks attractive, despite the challenging wetland geography that means Noront plans to build the mill underground, where tailings would also be stored.

But Cooper said in an interview that a solution to Noront’s problems was not likely far off.

“They have to find another deposit similar to Eagle’s Nest,” he said.

Kaiser Bottom Fish writer John Kaiser agreed.

“Until they find something bigger, it is a stranded play,” he said.

“The Eagle’s Nest deposit by itself is just too small to justify development.”

Given the company's large landholding in the area, which has come to be known as the Ring of Fire, the geology there, and the management team's track record, finding another large deposit was likely, according to Cooper.

“I’m confident that in 2011 they will discover a new orebody similar to Eagle's Nest. The probability is extremely high,” he commented.

Another junior active in the McFauld’s Lake region, KWG, has seen its share price fare better, having risen by 50% since this time last year to trade at C$0,10 a share. Still, since a spike in May, the company has also been on a downward trajectory.

There was a lot of action in 2009 and early last year around the Ring of Fire, when Cliffs Natural Resources got involved in bidding battles for Spider Resources and Freewest Resources, both of which it won.

BUYING OPPORTUNITY

The fact that Noront’s share price had been knocked down from the levels above C$1,32 apiece immediately prior to the announcement of the preliminary assessment of Eagle’s Nest to the C$0,93 the shares were trading at on Thursday, meant that the company was being “overly penalised”, Cooper said.

“We’re in that period of time where there is a buying opportunity,” he added.

Cooper’s target price for Noront shares is C$1,40, without the assumption of another major discovery.

“Were they to indeed come up with a second very promising deposit then a rerating would flow from that,” he said.

‘TARGET RICH’

Meanwhile, Noront CEO Wes Hanson said in an interview on Wednesday that the focus for the rest of the winter was on exploring the AT 12 area near Eagles Nest.

“There is a lot of what geologists would term ‘smoke’ in that area,” he said.

“The Ring of Fire is a target-rich environment.”

Previously, Hanson told Mining Weekly Online that Noront would complete a feasibility study on Eagle's Nest this year.

He said whether this would still happen depended on the success of Noront’s exploration.

“If we hit another Eagle’s Nest, the whole plan changes. I’m optimistic there will be exploration successes in the early part of the year.”