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Lachlan Star Given Speculative Buy, $1.85 Price Target By Canadian Broker

Lachlan Star (ASX/TSX:LSA) has attracted the attention of Canadian broker Industrial Alliance Securities. Here is a summary of the report:

New Opportunities at CMD Mine Highlight Exciting 2013

Closing Price (04/02/13) $0.45
52 week High/Low $0.43 - $1.78
Avg. Vol. 3 Month 81,750
Shares Outstanding (NYSE:M) 91.6
F.D. Shares Outstanding (M) 102.7
Market Cap (M) $41.2
Enterprise Value (M) $46.2
Year End Jun-30
Currency used CAD

Lachlan is a junior gold producer through its wholly-owned asset, the CMD Gold Mine, located in Chile. Lachlan remains at a crucial stage of development as it continues increasing production.

SUCCESSFUL TO DATE

Since purchasing the distressed asset in 2010, Lachlan has achieved multiple key milestones. Notably, Lachlan increased the resource at the CMD Mine by over 300% to 3.36Moz Au. The new resource eliminated one of the largest risks at the CMD Mine and confirms the potential of the mineralizing system. Management also hired key personnel to re-energize and improve efficiency at the mine.

TURNAROUND STILL ONGOING

Lachlan Star is targeting annual production of roughly 90,000oz Au which management believes will be achieved in FY 2014.

Important catalysts in CY 2013 will help Lachlan fully unlock the value of CMD and include:

- Start of ROM Ore: Lachlan will begin stacking ore below the cutoff to increase overall gold production. ROM ore is not crushed; lowering overall cost and maintaining healthy margins. We expect ROM gold to be reflected in Lachlan's FS starting in Q2 FY 2014.

It is expected that annual gold production could increase between 10,000oz and 20,000oz.
- Owner Mining: Lachlan Star is moving away from contractor mining to an owner operated mine fleet. This move should allow Lachlan to retain competent employees and better manage operations; reducing overall costs.
- New Reserve and Mine Plan: It is expected that the new mine plan will focus on the Tres Perlas pit as most of the new ounces discovered are concentrated within the Tres Perlas deposit. The new reserve statement would also increase the mine life substantially beyond the previous estimate of approximately two years.

INVESTMENT THESIS

We are initiating coverage of Lachlan Star with a Speculative Buy rating and $1.85 target. We derive our target from our DCF model (LOM average $1,447/oz Au, 5% discount rate, 0.85x multiple) of the CMD Mine. Lachlan Star currently trades at 0.23x P/NAVPS, a range consistent with developers, not producers.

We expect a re-rating if production targets are met and costs are controlled. Lachlan also has access to substantial Chilean tax holidays worth over $100M, indicating that once the turnaround is complete, the CMD will generate important FCF. No value has been assigned to Lachlan's other projects.

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