Noront Resources
High-grade Ni-Cu-Pt-Pd-Au-Ag-Rh-Cr-V discoveries in the "Ring of Fire" NI 43-101 Update (March 2011): 11.0 Mt @ 1.78% Ni, 0.98% Cu, 0.99 gpt Pt and 3.41 gpt Pd and 0.20 gpt Au (M&I) / 9.0 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inf.)
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Investment Research
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Mining
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Initiating Coverage
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BUY
(Risk* - Speculative) |
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NOT-V: C$1.51
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12-Month Target Price: C$
2.90 |
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February 19, 2010
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Noront Resources Limited Base Metals (Nickel, Copper, Chromium
, PGE, Vanadium) |
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Extraordinary Success in the "Ring of Fire" - Canada's Next Great Mining District
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Rodney Cooper, P.Eng. MBA (416) 350-5045 rcooper@dundeesecurities.com Darcy Donelle, CA (416) 350-3414 ddonelle@dundeesecurities.com
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The "Ring of Fire" is potentially the next great mining district in Canada. Located in the James Bay Lowlands of northern Ontario, it covers a vast area and is currently being explored by 17 companies on two dozen separate projects. Noront Resources, a junior exploration company, holds the premier land position in the "Ring of Fire" and has discovered 7 deposits in 30 months (2007-2009). Their primary deposits hosting NI 43-101 compliant resources are Eagle's Nest (136 million lbs nickel, 68 million lbs copper) and Blackbird (11 billion lbs chromite). We believe Noront is very well positioned to build shareholder value due to its large and prospective land position, recent outstanding history of discovery, the high grade and early development prospects for the Eagle's Nest deposits, and an ongoing exploration program that promises great opportunity. In 2010 we anticipate a revised resource estimate for Eagle's Nest, followed early in 2011 with a feasibility study. Noront is managed by a seasoned team of industry professionals with vision and perseverance. We initiate coverage of Noront Resources Limited with a
BUY recommendation (Risk* - Speculative) and a 12-month target price of $2.90. |
February 19, 2010 Noront Resources Limited Page 2
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Contents
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Investment Highlights.................................................................................................................................................3 Noront Resources Limited - Overview.......................................................................................................................9 Eagle's Nest Deposit.................................................................................................................................................10 Blackbird Deposit......................................................................................................................................................13 Chromite Fundamentals............................................................................................................................................16 Corporate Overview...................................................................................................................................................19 Board And Management Team.................................................................................................................................20 February 19, 2010 Noront Resources Limited Page 3 INVESTMENT HIGHLIGHTS Opportunities - Land Position, History of Discovery, Quality Assets, Current Discount 1. Noront has the
dominant land position in the "Ring-of-Fire", discovering seven new deposits in only 30 months
between 2007 and 2009. Additional discoveries are very likely. Noront plans to continue its exploration efforts and we anticipate a positive news flow from drilling results in the second half of 2010.
2.
Technical Programs are Ahead of Competitors: Eagle's Nest and Blackbird are one or two years ahead of the other exploration companies
, with an infrastructure and logistics study, a revised Eagle's Nest resource and a feasibility study anticipated in the next 12 months, supporting long term planning objectives.
3.
Recent Pull-back is a Buying Opportunity: While the peer group of exploration companies working in the areas has seen a share price pull-back averaging 6%, Noront has fallen 29%, reflecting the drama surrounding the Freewest offer, and more recently a setback for the exploration program due to a First Nation's objection to the use of the airstrip. We view these events as temporary influences and see the disproportionate pull-back as a buying opportunity. The entry of Cliffs Natural Resources into the camp has validated the area
as highly prospective from a senior company perspective, offering longer term support for the more advanced exploration companies in the area.
4.
Eagle's Nest Expected to Reach Critical Mass in 2010
: The Eagle's Nest is open at depth and along strike. We anticipate the infill drilling completed in 2009 will result in a significant increase in the reportable resources, moving the size and grade of the deposit into economically-viable territory at current market prices.
5.
Early Cash Flow Strategy at Eagle's Nest:
The massive mineralization identified at Eagle's Nest offers the potential to develop a low capital cost, direct-shipping project initially, generating earlier cash flow to further develop the asset base. Drilling results reported by the company indicate that this massive mineralization persists to depth.
6.
Blackbird Economic Prospects are Favourable
: Extension of the Blackbird deposit to depth is very possible. Blackbird remains the highest confidence chromite resource identified in the region so far. Grades and tonnages are consistent with similar mine developments elsewhere in the world and early indications are that this deposit could be economically developed. Noront is considering common underground access alternatives for Eagle's Nest and Blackbird which should reduce capital requirements in the longer term.
7.
Gold Would Make a Difference
: Discovery of economic gold mineralization is very possible. The Triple J Gold Zone discovery, as part of the Eagle's Nest complex, offers the first glimmer. Early development of a gold prospect could accelerate cash flow without the added transportation burden associated with base metal discoveries.
8.
Investment Hurdles Should Diminish over Time
: The Thunderbird Occurrence includes significant intervals of vanadium (V2O5), titanium (TiO2) and magnetite (Fe3O4), all of which could complement a regional development strategy. Infrastructure development at Eagle's Nest and Blackbird should reduce the investment hurdles for subsequent deposits such as Thunderbird.
9. In the long term, regional infrastructure development in collaboration with other companies and governments would reduce development costs for all participants in the new mining district. 10.
Building Essential Relationships
: Noront's First Nations Advisory Group was established in October 2009, and an exploration agreement has been completed with the Marten Falls First Nation. Building constructive relationships with the First Nations was recognized early by Noront as a critical project element and should position it well to resolve the current issues and advance the drilling program in 2010. Noront has both a communications executive and a First Nations executive on the team.
Table 1 Noront Anticipated News Flow 2010 - 2011
Q1 - 2010Eagle's Nest revised resourcesResolution of First Nation's access issueQ2 - 2010Transportation Study - Phase 1Resumption of DrillingNomination of Feasibility EngineerQ3 - 2010Drill ResultsQ4 - 2010Drill ResultsTransportation Study - Phase 2Q1 - 2011Feasibility Study - Eagle's Nest / BlackbirdSource: Noront Resources
February 19, 2010 Noront Resources Limited Page 4
Risks are Significant at this Early Stage of Project and Regional Development
Risks are Significant at this Early Stage of Project and Regional Development
1. The
timeline to commercial production is long
. Eagle's Nest construction guidance is 2014, with production in 2016, while construction at Blackbird could start in 2017, with production in 2020. Challenges to this timeline, including permitting, First Nations and regional infrastructure issues, are yet to be defined.
2. The
remote location, extreme weather and seasonal access
increases construction, capital cost and operational risks. The extreme distance to a tidewater port will increase the cost of delivering ores, concentrates or ferrochrome products to customers.
3.
Management of relationships with First Nations is often challenging
, and in this case, several groups are involved. In early 2010, Noront suspended its drilling program temporarily due to a First Nation's objection to the use of its airstrip. This issue has not been resolved, though negotiations are ongoing. Resumption of the drilling program will be required in order to full fill approximately C$14 million in flow-through financing obligations in 2010.
4
. Market risks
for nickel and copper influence Eagle's Nest development, while the Blackbird deposit is exposed to long term steel, chromite and ferrochrome market risks. As an example, the Eagle One preliminary assessment assumed that toll milling capacity would be available at Xstrata's Strathcona mill in Sudbury, an untested hypothesis.
5.
Financing is a Challenge
: Development of the Blackbird deposit to full commercial production will require levels of capital and financing beyond the Company's current capability. Senior company sponsorship by way of off-take agreements, equity or partnership participation, and/or support on the debt side would be required to develop this asset.
6.
Preliminary metallurgical testing for Blackbird ore
indicates concentration of chromite to commercial grades is possible. Flow sheet development aimed at reducing silica levels to acceptable levels and concentration of fines will be the focus of the next stage of test work in 2010.
7.
Government Partnerships
: Several companies in the "Ring-of-Fire" anticipate that private-public partnerships will form a significant role in regional infrastructure development for all-season road or rail access, hydro-electric power development and even for a town site. Advancement of some projects may in fact be predicated on government participation in regional development, in roles, and according to timelines, that have yet to be defined. Not all of the concepts articulated in the media and by other exploration companies are endorsed by Noront.
Valuation - Eagle's Nest and Blackbird Risk-Adjusted Fundamentals Offer Upside Potential
The Dundee valuation uses the discounted cash flow technique to evaluate each of the Eagle's Nest and Blackbird deposits. The inputs are based on reported NI 43-101 reported resources, but in the case of Eagle's Nest, Dundee has assumed a significant increase in 2010 based on the 2009 drilling that has been completed. No value is estimated for other deposits such as Triple J, AT-12 or Thunderbird due to their very preliminary status.
The valuation includes the discount cash flow from the two deposit models, credit for cash and an assessment of un-mined resources (which in this case is zero). A discount rate of 10 percent is applied to the pro-forma Blackbird cash flows, and a discount rate of 7 percent is applied to Eagle's Nest. The lower rate for Eagle's Nest reflects the high platinum group and precious metals content. The valuation has a Price to Net Asset Value multiple of 70% applied, reflecting the early stage of project delineation.
February 19, 2010 Noront Resources Limited Page 5
Table 2 Noront Base Case Valuation
Net Asset Value (End 2010)NAV (C$m)C$/Share
Projects & Corporate700 4.02Cash13 0.08Residual Resources- 0.00Total713 4.10Dundee DCF Target Multiple0.7012 Month Share Price Target2.90
Potential Uplift92%
Source: Dundee Estimates
Risks are Significant at this Early Stage of Project and Regional Development
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Peter Marshall
City
Rank
President
Activity Points
4863
Rating
Your Rating
Date Joined
12/21/2007
Noront Resources
Symbol
NOT
Exchange
TSX-V
Shares
326,029,076 As of Jan 17, 2017
Industry
Metals & Minerals
Website