Raymond James: Helen Should Grow, but Newmont Remains a Key Overhang

Last Thursday, we attended a site visit at VIT’s 100%- owned Cove-McCoy and 70%-interest Santa Fe gold projects in Nevada.

Impact is moderately negative. We remain cautious on VIT given extended uncertainty over Newmont’s (NEM-TSX) back-in at Cove, Nevada.

Analysis

Cove’s Helen Should Grow. We continue to see strong resource growth potential at the Helen zone (currently 0.53 Moz inferred) both within a 125 m vertical gap in the resource model and laterally along stratigraphy, as well as, at the 13 other Helen-style targets on the Cove-McCoy property.

Newmont Considering Back-in? We continue to believe NEM is unlikely to exercise its ~US$30 mln, 51% back-in right at Cove. However, we speculate the terms of the resulting arrangement have the potential to change given NEM’s 90-day exercise window (triggered by delivery of a >0.5 Moz resource on or before Feb-4-10) has now expired with both sides continuing to talk. For reference, if NEM does indeed back-in, our scenario analysis shows a potential impact reflecting NAVPS of $0.93 (compared to $1.01 currently).

Caution on Santa Fe. Santa Fe, VIT’s third focus after Cove and Eagle, is still very early stage with only six holes drilled thus far. Our caution has not subsided post-visit given refractory sulphide mineralization, highly complex geology and elusive higher‐grade target zones.

News Flow Slow. Only one rig is currently drilling at Santa Fe and we do not expect drilling at Cove to resume until negotiations over NEM’s backing are finalized (hopefully by end of Jul-2010). A recent departure of technical staff in the Yukon and reshuffling in Nevada could also prolong exploration results. That said, an aggressive $10 mln 2H10 budget largely focused on Dublin Gulch drilling should beef-up news flow by Aug-2010.

Outlook Remains Mixed. Our increased confidence on resource growth at Cove is offset somewhat by NEM back-in uncertainty, decreased near term news flow and continued caution on Santa Fe. We look forward to drill results from Eagle and clarity to NEM’s back-in in the near-term.

Valuation

We are maintaining our rating at MARKET PERFORM and lowering our target to $0.90 (from $1.00). Our target is based on a C$1.01 NAVPS and a 0.9x (from 1.0x) P/NAV multiple. Our reduced multiple reflects increased uncertainty surrounding Newmont’s 51% back-in at Cove.