Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Otis Gold an "excellent opportunity" for low-cost gold exposure, says Byron Capital Markets

Otis Gold (CVE:OOO) represents an "excellent opportunity" to gain exposure on low-cost gold in the US, Byron Capital Markets said in its latest research report.

Byron Capital Markets' analyst Jeff Wu has initiated coverage on the US-focused precious metals explorer with a "Buy" rating and $2 price target.

With its completed environmental scoping study, 3-D modelling and updated NI 43-101 report at its Kilgore project, the company will be ready to complete final drilling at the Mine Ridge deposit and ultimately transform itself into a low-cost gold producer, Wu wrote in his report.

Otis Gold's flasghip Kilgore project is located within Clark County, Idaho and 72 miles north of Idaho Falls, the largest city in the eastern part of that US state. Kilgore is covered by 162 federal lode mining claims totalling 3,240 acres.

Based on released assay results from new drilling holes, the updated gold resource at Kilgore could reach nearly 1 million ounces in the near future, Byron's note said. An historic non-NI 43-101 compliant resource of 706,000 ounces with an average grade of 1.1 grams/tonne gold was calculated by Echo Bay Mines, the former owner of Kilgore, in the late 1990s.

Based on assay results from new drilling in the Mine Ridge area between 2008 and 2010, Otis is expected to increase its gold resource at Kilgore in size and possibly grade in its updated technical report. With incremental resources from an updated NI 43-101 report expected in 2011, Kilgore’s net present value could increase significantly, Wu said.

Since the majority of Kilgore’s ores are oxidized with low sulphide content, a heap leach processing method is expected to generate promising gold recovery rates, with low processing costs. Echo Bay Mines planned to develop the gold mine in 1996 when the gold price was below $400/ounce, but did not proceed due to the financial stress it was experiencing at the time.

At current gold prices, the expected internal rate of return for the Kilgore gold project should be even more attractive, Wu said in his note.

Meanwhile, Otis' Oakley gold project is located in Cassia County, Idaho, approximately 15 miles south of the town of  Oakley, and just north of the Utah–Nevada border. The property is a classic epithermal hot spring-type gold exploration target, comprising 107 federal lode mining claims and several Utah state leases - comprising approximately 3,500 acres. The project has two primary geologic targets: Blue Hill Creek and Cold Creek.

Wu said that there was "high-growth potential" for Oakley’s long-term resources, based on historic drilling results and the geophysical survey of late 2008.

Since historic drilling programs in the Oakley property were limited and all drilling holes were limited-depth reverse circulation holes, the mineralization at Oakley remains open in all directions, both laterally and at depth.

According to former property owner Blue Hill Creek’s NI 43-101 technical report from 2008, potential still remains for the discovery of a 0.5 to 1 million ounce gold deposit comprising bulk-tonnage rock-hosted near-surface mineralization, as well as higher grade carbonate-hosted underground mineralization. With future exploration programs at Oakley, Otis is expected to generate substantial positive surprises for its shareholders.

Byron Capital Markets analyst Wu also praised CEO Craig Lindsay for assembling an "excellent" management team with strong track records in the industry. Since Otis Gold’s current key geological team members previously worked in senior roles for Echo Bay Mines, which conducted numerous field studies and explored the known gold resource at Kilgore in the 1990s, the team has a strong historical knowledge of the Kilgore project.

Wu sees the company’s stock price as significantly undervalued compared to its peers. Otis Gold's stock has risen 64% since July and is currently trading hands at 64 cents.