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Minera IRL at big discount to finnCap's target price

Published: 08:46 05 Jul 2013 EDT

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A weak gold price has prompted house broker finnCap to lower its price forecast for Minera IRL (LON:MIRL TSE:IRL), though it is still over seven times more than the market’s value.

The broker said a reduction in its long-term gold price forecast to US$1,400/oz from US$1,500/oz caused the 15% reduction in target price to 88.2p.

There are two reasons why the South American gold miner trades at such a discount, finnCap suggests.

The first is sentiment over gold, though the broker believes the current metal price of US$1,243/oz is oversold and unsustainable.

A second, and more tangible reason is that Minera has two mining projects that are essentially ready for financing.

Don Nicolas, in Argentina, is unlikely to be dilutive as it will be financed at the project level using local money and should not require any new stock to be issued.

The larger Ollachea project, in Peru, will require some new equity unless some unconventional financing or a joint venture partner can be found, which could involve signfincant numbers of new shares being issued at the current price.

FinnCap's esitmates assume gold production at Don Nicolas starts in mid-2014, with Ollachea starting in mid-2015. "Thereafter, we expect production to settle at a steady state of around 120,000 ounces per year."


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