Mackie Research – Spotlight on Ontario; Goldex to Add Cash

EVENT – Projects in Ontario Getting More Attention

Given the recent acquisition of projects in Ontario by IAMGOLD (IMG.T, $19.50 – BUY) and Argonaut (AR.T, $12.00 – BUY), we note that Probe’s 5.85mm oz Borden Lake project remains one of the few large deposits in Ontario which is not yet owned by a junior or senior producer.

In addition to a cheap valuation, we also note that little to no value has been ascribed to either PRB’s chromite claims, or a royalty on the M-Zone of Agnico- Eagle’s (AEM.T, 44.35 – BUY) Goldex mine.

IMPACT – Positive; Trading at a Discount with Lots of Upside

Trading at a discount to recent acquisitions: Given IAMGOLD’s acquisition of Trelawney for $88/oz (see our April 30th IMG note) and Argonaut’s acquisition of Prodigy for $51/oz (see our October 16th AR note), both of which are sub 1g/t deposits located in Ontario, Probe continues to look cheap at ~$21/oz. Should we apply an average valuation of $70/oz based on precedent transactions, we would arrive at a target price of over $6.00. Using the current $50/oz peer group average for development projects, we would arrive at a target price of ~$4.35.

All cashed up with more updates expected shortly: As of July 31st, Probe had a total of ~$26.1mm of working capital, with several key catalysts to come, including an updated resource before the end of the year and a PEA in Q1/13.

Agnico’s Goldex mine to make a comeback, adding cash flow in 2014: We also note that with Agnico-Eagle’s (AEM.T, 44.35 – BUY) recent filling of an updated technical report on Goldex, Probe’s ownership of a 5% NSR on the M-zone now accounts for ~$13mm of our current NAV. Agnico-Eagle expect Goldex to begin production in 2014, with the M Zone currently containing ~189koz, which translates to royalty payments of up to $7mm/year for 2 years.

No value given for chromite either: We also had a good look at value of PRB’s chromite holding the Ring of Fire. PRB holds 100% interest in ~10 million tonnes of material grading ~38% chromite, which lies contiguous with existing chromite resources being developed by Cliffs Natural Resources. We believe this holding is worth at least $0.38, and more likely $1.00 based on prior take-out values.

ACTION – Maintain BUY Rating and $4.00 Target Price

After increasing our valuation for non-modelled ounces, our NAVPS increases to $5.61 from $5.25. Our $4.00 target remains unchanged based on 0.7x our NAVPS.