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Vantage Goldfields: Canaccord Gives Buy Recommendation, Share Price Target Of $0.68

Vantage Goldfields (ASX: VGO) has received a buy recommendation from Canaccord and a target price of $0.68 - which is around five times higher than the current $0.13 per share value.

The following is an extract from the report.

Specialist Underground Producer Offering Quality Management and Long Life

Investment Perspective:

VGO is a specialist underground gold miner that is working towards the expansion of project gold production to 100,000 oz.p.a., in a South African greenstone goldfield that offers long life potential with a strong resource base of 4.5 Moz and 0.7 Moz in
reserves.

VGO has been overlooked by the market to date with the shares selling at relatively inexpensive fundamentals. This lack of interest can be attributed to a number of factors; slow ramp-up to forecast production levels with disruption from industrial disputation, modest production levels, limited liquidity in the share market - though there are two good institutions on the register with substantial shareholdings, and general lack of market enthusiasm for South African operators.

Nevertheless, we see that VGO offers sound merit; strong expertise in underground mining, impressively efficient operations, a steady growth curve and a large resource base. As it starts to deliver on its promises and production approaches 100,000 oz p.a., it will be seen in a more positive light.

Vantage would be a suitable investment for investors seeking leverage to the gold price, in a company that is growing, rather than one for aggressive traders.

KEY POINTS

Quality Management:

One of the greatest challenges for gold companies has been the availability of quality management due to the skills shortage. VGO has very experienced South African management with a proven track record in underground mining.

Substantial Resources Support Long Mine Lives:

A 4.5 Moz resource promises to support operations for more than 10 years at the expanded rate of 100,000 oz p.a. Conversion to resources in the Barberton gold field is traditionally at least 50%. JORC statements require underground development so the apparent conversion rate will appear less at any point in time.

Excellent Infrastructure:

South Africa continues to have the best infrastructure of any African country. VGO's operations are within an hour's drive of an international airport on sealed roads, grid electricity is available and modern towns can house local workers. The location is more advantageous than what many Australian gold mines experience.

Growth Opportunities:

VGO is looking to ramp up production to 100,000 oz p.a. with the installation of a BIOX plant at an estimated cost of $70m. This is half the cost that a company is looking at in Ghana for a similar rate of 65,000 oz p.a., in a new development.

Further out VGO has a number of other locations at Barberton that could incrementally add to production.

Tight Register:

The shares are tightly held with two institutions dominating the register. While institutional support is good, there needs to be greater involvement of smaller investors to provide market liquidity.

This should happen in due course as the Company begins to deliver on its growth plans and the shares are re-rated accordingly.

Shallow Underground Mines:

VGO is operating in a greenstone belt with shallow underground mines, in contrast to the more challenging deep Witwatersrand gold mines.

Community Relations:

VGO has successfully concluded a two year wage agreement with the labour union, with 75% of the workers coming from local communities. These communities are also shareholders in the Black Empowerment company.

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