Candente Resource Update Could Be Worse

One day after investors punished Candente Resources Inc. (CDOUF.PK) due to the company's less-than-expected resource update, analysts were advising clients that less is more when it comes to the copper miner's latest estimates. 

On Thursday, Candente announced that the new resource estimate at its 100%-owned Cañariaco Norte copper project located in northern Peru. is for 7.7 billion pounds of copper down compared with the previous estimate of 8.1 billion pounds.

Despite the modest decrease, Wellington West analyst Steve Parsons said the resource update validates the potential at Cañariaco, noting the latest resource estimate performed by SRK is based on more stringent parameters than those used incorporated by Minefill Services in 2007. 

Mr. Parsons said in a note to clients:

Had SRK utilised comparable parameter to Minefill, it is probable, in our view, that the overall resource would have increased in size. Indeed, SRK has idenitified areas within the resource shell where additional infill drilling (i.e. tighter drill spacing) has the potential to increase the resource tonnage by approximately 15% to 20%.

The analyst said that because of the stricter estimation methods, Cañariaco is closer to a mineable deposit than it was previously. Based on recent weakness in the stock, including Thursday's 10% drop, Mr. Parsons told clients that upside in the shares still exists representing a buying opportunity. He maintained his "buy" recommendation and left his C$3 price target unchanged. 

Blackmont analyst George Topping told clients that while the latest resource estimate was disappointing, falling well short of his forecast, he has "no doubt the tonnage is there." Echoeing Mr. Parsons, he said Candente remains significantly undervalued.

Candente has one of the most deeply discounted copper deposits in South America with an in-situ value of just $0.0187 per pound on the new copper resource (including 50% of inferred pounds).  Three recent Chinese copper deposit transactions in Peru have been at approximately $0.04 per pound.

Mr. Topping maintained his "buy" recommendation and C$3.40 price target.