Here is a summary of the report:
More extensive gold-rich mineralisation at Kharmagtai
XAM had a working knowledge of the Kharmagtai gold-rich porphyry copper project in Mongolia prior to acquiring it from RIO in May 2014, and has enhanced its knowledge greatly since then through its active review of the historical data and generation of significant new data from its ongoing exploration.
XAM has made important geological breakthroughs over recent months that have not only given it improved ability to target zones of higher grade and/or larger bodies of mineralisation, they have also led to the discovery of additional targets and recognition of a much broader range of mineralisation at Kharmagtai.
The excellent recent exploration results by XAM at Kharmagtai have been strongly endorsed and benefited from specialist technical reviews. The high quality of XAM's exploration work was also recognised by the strong support the company received at the end of 2015 when it raised more than originally expected from a placement and SPP despite the poor market conditions.
Winter drilling program to increase Kharmagtai Resource
The capital raised in late 2015 enabled XAM to reduce the Deferred Acquisition Consideration for Kharmagtai and is funding continued exploration on its flagship project through the winter period. The winter drilling at Kharmagtai is designed to increase the current Kharmagtai Resource of 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 are comfortable with our estimate for a larger resource of at least 240Mt at a grade of about 0.56% CuEq at Kharmagtai. Exploration activities have also recommenced at Oyut Ulaan, to follow up high grade discoveries there in May 2015.
Copper price steadying, gold price on the move (at last)
Significant copper production cutbacks announced towards the end of 2015 that were aimed at reducing copper stockpiles at terminal markets and getting the market back into better balance seem to have had some effect. With the short term oversupply reduced, the copper price has rebounded and steadied.
We still believe the medium and longer term supply/demand fundamentals for copper will lead to significantly higher prices, especially with few new projects likely to come on stream over that time.
The gold price has recently moved up very decisively, rising to a 12-month high of over US$1,260 per ounce in response to the weaker US dollar from the market's perception that there may be few, if any, interest rate rises in the USA over the course of 2016; and from investors seeking gold exposure amid the turmoil in global equity markets.
Investment thesis: Spec. Buy, Valuation $0.35/sh (prev. $0.33)
Continued exploration success at Kharmagtai has not only confirmed the likelihood of a major increase to the Resource there but has identified broader and potentially significant other styles of gold-rich mineralisation that further enhances the attraction of the Project.
We have revised our equity diluted valuations of XAM to incorporate the enhanced mineralisation potential at Kharmagtai; the reduced terms of the deferred consideration for Kharmagtai; and dilution from a potential raising over the next year although development studies likely to be underway by then could be funded by a major partner.
Our 12-month forward valuation is raised by 6% to $0.35/sh.
Speculative Buy recommendation retained.
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