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TNG Limited valued at five times its current share price by U.K. broker

TNG Limited (ASX: TNG) has been given a target price of A$0.45 by a U.K. broker, well above its last traded share price of $0.089.

The following is an extract from the report.

TNG Limited (ASX: TNG) has completed a capital raising of A$6.6m as part of the first phase of the broader $13.4m transaction with East China Mineral Exploration & Development Bureau (“ECE”).

We view the successful completion of the first stage of the deal as a positive development, and furthermore, securing the funds at a 45% premium to the current share price is a major accomplishment by TNG, given the current state of the global equity market.

- A$6.6m cash injection. Aosu Investment and Development Co Pty (“Aosu”), a subsidiary of ECE, has subscribed for and been issued 59.8m shares in TNG at a price of 11¢ per share to raise gross proceeds of $6.6m before costs.

The transaction is part of the larger $13.4m ECE transaction announced on the 3rd August 2011. We note that the subscription price of 11¢ represents a 45% premium to the current share price.

- Fully funded. As a result of the cash injection, we estimate that TNG is now fully funded through to a decision to commence the DFS at Mount Peake, likely in Q2 2012. The final part of the ECE transaction will see an additional $6.8m cash injection into TNG, further bolstering the company’s financial position.

- Use of proceeds. TNG will use the funds to continue metallurgical test-work for the Mount Peake deposit in addition to directing a portion of the proceeds towards drill-testing new targets in the Mount Peake area. TNG has also repaid a $2m loan plus interest owing to Aosu. Lastly, TNG anticipates commencing exploration at the company’s newly acquired copper licence in the Northern Territory.

- FIRB approval Q1. The final part (remaining $6.8m) of the ECE transaction needs to be approved by the Australian Foreign Review Board, which TNG anticipates during Q1 2012.

- No change to target price. Our target price of A$0.45 per share remains unchanged, as our base-case valuation is prepared on a fully diluted basis, having already adjusted for the ECE transaction.

We maintain our buy recommendation on the stock and stress that given the company’s strong financial position and momentum at key projects, we see the current discount in TNG shares trading at 7.5¢ as excessive.

2012 has the potential to be a monumental year for TNG and if the quick pace of progress continues, we consider the company’s shares due for an appreciable re-rating.