The broker maintains a Speculative Buy recommendation on the company.
The following is an extract from the report.
Strong endorsement of great results seen in capital raising
The excellent recent exploration results by XAM at its Kharmagtai gold-rich porphyry copper project in Mongolia, which build on previous results, have been strongly endorsed by the support the company has received in its recent capital raising.
Despite the tough times being experienced in the resources sector generally and the weakness in commodity prices, XAM has agreements to raise $8.3m by a placement at $0.125 per share to new and existing sophisticated and institutional shareholders including two of its longstanding major shareholders.
The placement is to be done in two tranches with the second tranche subject to shareholder approval.
The company is also undertaking a share purchase plan (SPP) at the same share price.
The total amount to be raised in the placement and SPP of about $10m after costs will be used to fund continued exploration on XAM's flagship Kharmagtai project through the winter period and to reduce the deferred acquisition consideration for Kharmagtai.
New drilling program to further expand Kharmagtai Resource
After a sensible pause in exploration activity to allow XAM to carry out a detailed technical review of the outstanding results of its recent exploration program, the company is about to resume active exploration.
XAM is finalising details of a comprehensive new exploration program comprising about 15,000m of diamond and RC drilling that is designed to build on the current momentum and further expand the size and grade of deposits not in the current resource inventory.
The current Kharmagtai Resource is 203Mt at 0.34% copper and 0.33g/t gold (0.50% CuEq) including a higher grade zone of 56Mt at 0.47% copper and 0.59g/t gold (0.76% CuEq)).
We estimate that the total resource would have been increased to at least 240Mt at a grade of about 0.56% CuEq as a result of the recent drilling and high grade trenching results.
The new exploration program is also designed to follow up on the recent trenching success at Tsagan Sudal.
Copper stockpiles reducing but price yet to respond
Recently announced production cutbacks are reducing global copper output, leading to a reduction in copper stockpiles at terminal markets.
Although the short term oversupply is reducing, it continues to negatively impact on the copper price, but we still believe the medium and longer term supply/demand fundamentals for copper are very supportive of significantly higher prices.
There is still a dearth of quality copper projects in the pipeline, which is why we continue to regard XAM's copper projects in Mongolia, particularly Kharmagtai, as so attractive.
Investment thesis: Spec. Buy, Val. $0.33/sh (prev. $0.29/shr)
Recent results point to a significantly larger Kharmagtai Resource that has even further elevated the attraction of the Project.
We have revised our equity diluted valuations of XAM to incorporate the effect of the current capital raisings (assuming the full amount of about $10m net is raised at a less dilutive price than previously expected) plus dilution of a further potential raising in late 2016, although development studies should be well underway by then that could be funded by a major partner.
Our 12-month forward valuation is raised by 14% to $0.33/sh. Speculative Buy recommendation.
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