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Stonecap initiates coverage on Queenston Mining, re-rating of shares expected

Stonecap initiates coverage on Queenston Mining, re-rating of shares expected

Stonecap Securities initiated coverage on Queenston Mining (TSE:QMI) (OTCQX:QNMNF) Thursday with an outperform rating and a 12 month price target of $7.00.

The capital markets firm said it believes the miner's shares will benefit from "continued execution of management's exploration programs, and from an eventual valuation re-rate as it de-risks its deposits at Kirkland Lake".

Stonecap analyst Ali Khan said that Queenston is positioned to join the ranks of emerging developers with the recent release of a "robust" preliminary economic assessment on the company's flagship Upper Beaver project located in Kirkland Lake, Ontario.

Earlier this year, the company released the preliminary report, which resulted in the decision to advance the project to feasibility.

In the base case scenario, using a gold price of US$1,275 per ounce and a copper price of US$3.00 per pound, the report estimated an after-tax net present value of C$233 million and a 22.1 percent internal rate of return (IRR), using a five percent discount rate. Payback period was projected at two and a half years.

Using current metal prices, after-tax net present value jumps to C$475 million, with an IRR of 35 percent.

The results were based on an underground mining operation with a 10-year life, and a processing throughput averaging 2,000 tonnes per day. Life-of-mine metal production was forecast at 1.1 million ounces of gold and 50.5 million pounds of copper. Pre-production capital costs were seen at C$240 million, with average operating costs of C$73 per tonne.

The research report noted that the production profile for Queenston is likely to increase "substantially" as additional resources are delineated at Upper Beaver and its four satellite deposits, leading to a re-rating of Queenston’s shares.

A resource update on Upper Beaver in the third quarter is expected to expand on the 2010 resource estimate, as it will include additional drilling in 2011 as well as drilling from the early part of this year.

The PEA report included a resource of 3.07 million tonnes grading 6.98 grams per tonne (g/t) gold and 0.54% copper for 690,000 ounces of gold and 36.6 million pounds of copper in the indicated category.

In addition, in the inferred category, resources consisted of 3.09 million tonnes grading 6.19 g/t gold and 0.42% copper for 616,000 ounces of gold and 28.0 million pounds of copper. This resource did not include drill results after December 31, 2010.



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