The broker's upside case valuation is increased by 16% to $0.52 per share.
This is based on an assumption that current drilling will increase the higher grade component of the resource at the Kharmagtai copper-gold project in Mongolia.
Shares in the company last traded at $0.10.
The following is an extract from the report.
Drilling underway to lift gold-rich porphyry copper resource
XAM is now well funded to carry out an accelerated program of extensional and exploration drilling at its two advanced gold-rich porphyry copper projects in the renowned South Gobi porphyry region of Mongolia - at Kharmagtai and Oyut Ulaan.
Under the expert direction of recently appointed CEO, Dr Andrew Stewart, XAM has recently begun a major drilling program at Kharmagtai to expand the significant initial resource there.
That drilling follows the recent limited but very successful drilling at Oyut Ulaan, where detailed geophysics continues to identify multiple new targets.
Mongolia back as a mining investment destination of choice
The recent agreement between the Mongolian Government and Rio Tinto regarding financial arrangements for Rio Tinto's huge investment (circa US$6B) in the underground component of the fabulous Oyu Tolgoi copper-gold mine is recognition that Mongolia is serious about being a pro-mining and development jurisdiction.
The new Prime Minister in Mongolia recognises that the previous prolonged "brawl" over the financial arrangements for Oyu Tolgoi was incredibly damaging to the country, which is well endowed with minerals that are much desired by neighbouring China and other growth economies in Asia, and that development of them is vital for Mongolia to achieve its objectives of a strongly growing and vibrant economy.
On a recent site visit to XAM's attractive porphyry copper-gold projects, we saw first-hand evidence of the pro-development attitude in the country and we now regard Mongolia as a mining and development destination of choice.
Maiden Resource a solid starting point as drilling continues
XAM's current multi rig drilling program at Kharmagtai is targeting shallow higher grade copper-gold mineralisation.
This drilling will test high grade extensions to mineralisation defined by previous exploration and new areas adjacent to it.
The Maiden JORC compliant Resource of 203Mt averaging 0.34% copper and 0.33g/t gold (0.50% copper equivalent) includes a higher grade core containing an Indicated and Inferred Resource of 56Mt averaging 0.47% copper and 0.59g/t gold (0.76% copper equivalent).
We strongly believe there is considerable scope for XAM to increase the size of the higher grade copper-gold resource at Kharmagtai to between at least 100Mt to 200Mt averaging 0.6% to 0.9% copper equivalent.
Investment thesis: Speculative Buy, Valuation $0.19/share
XAM's strong technical and corporate management has recapitalised and repositioned the company over the past two years.
XAM is now finally able to fund meaningful programs of drilling and associated exploration on its advanced, world class gold-rich porphyry copper project at Kharmagtai as well as doing very value-adding exploration at its Oyut Ulaan Project, where there is growing evidence of the presence of a major mineralised porphyry system with similar geological features to Kharmagtai.
We have reviewed our equity diluted valuations of XAM to incorporate lower copper price forecasts, lower capital and operating costs, the higher share price and positive recent exploration results.
Our base case valuation is retained at $0.19 while our upside case valuation is increased by 16% to $0.52 per share.
Accordingly we retain our Buy recommendation with Speculative risk.
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