Australia | Feb 14 2011
This story features KGL RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: KGL
– Intersuisse reiterates Buy rating on Kentor Gold
– Commission of Enquiry unlikely to delay Andash project
– Andash is low cost and offers potential for expansion
By Chris Shaw
Kentor Gold ((KGL)) is an emerging gold producer, the company focusing on projects in the Kyrgyz Republic with an 80% interest in the Andash gold-copper project its major asset.
Kentor is currently awaiting a social licence for the project and stockbroker Intersuisse suggests this is expected after the Commission of Enquiry set up by the Kyrgyz government reports on March 1st this year. The commission was established to deal with some incorrect perceptions relating to the project such as the use of cyanide and that the project would only generate benefits for a minority in the community.
In contrast, Andash is expected to provide 450 direct jobs in the area, while Intersuisse notes the project will also pay a 1% community royalty as well as government royalties and taxes.
Importantly, according to the broker, work on the project has not been suspended until the commission reports. While on-site community support activities have been suspended, off-site work such as finalising engineering and procurement and negotiating construction contracts are continuing. Actual project construction was not expected to start until March, so assuming the commission delivers its report on time there should be no delays.
Commissioning of the Andash project is currently scheduled for March, 2012. Equity funds for the project are in place and Intersuisse notes Kentor management are currently working with Macquarie Bank ((MQG)) to organise the debt component of the development.
Given its 80% stake in the project, Andash should generate production for Kentor of around 70,000 ounces per year for six years, at a cost of around US$10 per ounce after royalties. At current metal prices, cash costs are expected to be less than US$300 per ounce, with Intersuisse calculating the company will enjoy a cash credit of US$330 per ounce.
Intersuisse notes Kentor management expect to increase resources at the project and at the nearby Aktash project, which would allow for an increase in production and an extension of mine life. An exploration program is to commence in coming months.
Using current spot metal prices Intersuisse estimates a valuation for Kentor of $0.35, which leads the broker to ascribe a Buy rating to the stock on valuation grounds. This call has been strengthened by recent share price weakness, which makes the stock even more attractive in the broker's view.
Intersuisse is not the only broker to take a positive view on Kentor, as RBS Australia also rates the stock as a Buy, with a price target on the stock of $0.21. There is no other coverage of Kentor in the FNArena database.
Shares in Kentor Gold today are slightly higher and as at 11.30am the stock was up 0.5c at $0.16. Over the past year the stock has traded in a range of $0.06 to $0.22.