Haywood Securities Thursday increased its target price and revised the rating for Terrane Metals (TRX-V) from Sector Outperform to Sector Perform, saying Terrane's Mt. Milligan project best suits patient investors who are comfortable with a ‘stronger for longer' metal price outlook, enhanced by the project's limited political and technical risk.
Analysts Stefan Ioannou and Danny Ochoa note, Mt. Milligan has the potential to propel Terrane from junior explorer to significant mid-tier producer. However, this transformation comes with challenges.
Haywood's formal valuation estimates an initial $1.25 billion capital cost estimate for Mt. Milligan, which is expected to ramp up to produce 88 million pounds of copper and 217,000 ounces of gold annually over a 15-year-plus mine life. However, financing risk has been reduced through a definitive agreement with Goldcorp, which addresses the previously uncertain fate of a 240 million convertible preferred share block and brings ‘major' financial backing and credibility to the project.
An updated feasibility study expected during the fourth quarter is believed to contain the information needed to convince Goldcorp to exercise its option at Mt. Milligan.
‘With a current working capital balance of $2.5 million (at year-end 2008) and a credit facility of up to $40 million backed by Goldcorp, Terrane is well positioned to make a production decision once financial markets improve, according to Haywood's analysis.
The analysts noted Mt. Milligan environmental permitting is well underway with permits anticipated to be in hand by the fourth quarter of this year.
The project is located in a geologically prospective area and is one of several large copper-gold porphyries found along Canada's west-coast mountain range. Although not the biggest, Mt. Milligan offers excellent logistics coupled with a modest initial capital cost estimate, the analysts said. The project is close to low-cost grid power, rail, and (paved) road. Furthermore, pine beetle devastation has made available a large labour pool in the area.