Agoracom: Small Cap Investment - Prodigy Gold - From Cannacord/Genuity

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From Cannacord/Genuity - target $1.75

posted on May 08, 2012 01:57PM

Prodigy Gold is an exploration and development company, focused on its 100%-owned Magino project, located in northwestern Ontario. Prodigy was formed with the merger of Kodiak Exploration and Golden Goose Resources, which closed in December 2010. Brian Maher is President and CEO.

• Prodigy Gold recently announced results from 11,182 metres of infill/resource definition diamond drilling completed at t

he Magino Gold project since March 20, 2012. The results were in line with our expectations, with improving continuity and resource expansion at depth potentially supporting resource confidence in the upcoming resource estimate, expected in June 2012. Currently defined resources include 2.2 million ounces grading 1.00 g/t gold in the Indicated category, and 1.7 million ounces grading 0.99 gpt gold in the Inferred category (using a 0.35 g/t Au cut-off). A full feasibility study is expected in H2/12.

• We view Prodigy’s Magino property as an above average, bulk mineable Au project with solid economic potential in an el

evated Au environment. Sound project characteristics, including metallurgy, infrastructure, and the socio-political jurisdiction, all contribute to Magino’s future development potential. The updated December 2011 PEA for Magino validates a superior mine plan, based on a 20,000-tonne per day open pit operation with annual production estimated at 249,000 oz Au per year, at average LOM cash operating costs of US$461/oz Au over an 11-year mine life (producing a total of 2.75 million ounces of gold).

• The 1,910-hectare Magino project includes the past-producing Magino mine, which produced 105,000 oz Au between 19

88 and 1992. The project is located 40 kilometres northeast of Wawa, Ontario. The northeast extension of the conceptual Magino pit lies on ground controlled by Richmont Mines (RIC : TSX | Not rated) as a part of its Island Gold mine (currently producing) land package.

• Our 12-month C$1.75 per share target price is based on a 0.8x multiple to our Magino NPV (10%, US$1,750/oz peak Au pricing). Our total risk-adjusted NAV 10% is US$523.8 million. Our target price represents a P/NAV 10% of 0.36x. Based on NPV (5%, US$1,750/oz peak Au), we value the project 12 months out at US$896.4 million, which equates to 0.20x P/NAV 5%. We believe that PDG’s shares are undervalued and open to upside re-rating.