Fronteer Looks Strong After Recent Successes

Fronteer Development Group Inc. (FRG) has had success by using its top-notch exploration team to unlock value in regions with strong mineral potential. RBC Capital Markets analyst Adam Schatzker is initiating coverage of the stock with a "buy" rating, and a target of C$12.50 a share, noting that Fronteer offers "excellent exposure" to major gold exploration projects in Turkey and Nevada, and a uranium project in Canada.

"We think that Fronteer should have a steady flow of exploration results through the year that may act as catalysts for the share price," he wrote in a note.

Fronteer is teamed up with Teck Cominco Ltd. (TCK) in Turkey, and Newmont Mining Corp. (NEM) in Nevada, giving it a pair of established partners. It also holds a 42% stake in Aurora Energy Resources Inc. [AXU/TSX], which has made significant uranium discoveries in Labrador. Mark O'Dea is chief executive of both companies.

"We think that using Fronteer as a vehicle to invest in Aurora is reasonable," Mr. Schatzker noted.

However, he does have some concerns. He thinks that more money needs to be spent in Turkey to test the upside potential there, but Teck is the operator and the gold projects are not as significant for Teck as they are for Fronteer. He also believes that Newmont is reviewing its commitment to the Northumberland joint venture in Nevada. If it pulls out, Fronteer shares could react negatively.

Mr. Schatzker does not think a takeover of Fronteer is imminent, but notes that there is a rationale for buying it in the longer term, namely the 42% Aurora block. But such a takeover would likely not happen until the resources are better defined, and the permitting and feasibility processes are well underway.