Shares in Sinclair Gold Ltd (ASX: SGC) are up more than 100% over a 12-month period, but the analyst team at Barrenjoey believes they could go much higher.
Barrenjoey has just initiated coverage on Sinclair and has an overweight recommendation and a very bullish share price target, which I'll get to shortly.
First, let's look at some news from the company.
Image source: Getty Images
More solid gold exploration results
Sinclair has today reported new drilling results from its Mt Henry deposit in Western Australia, including an intersection of 0.4m at a grade of 122.7 grams per tonne.
Sinclair Gold Chief Executive Jeff Sansom said regarding the results:
The latest drilling continues to deliver exceptional grades and broad intersections well beyond the ~0.9 million ounce Mt Henry Resource footprint, highlighting significant growth potential. Results across northern, central and southern Mt Henry continue to expand the footprint of gold mineralisation. High-grade gold intersected 250m south of the current Mt Henry Resource boundary, beneath previous Birthday Gift drilling, has also identified an exciting target for follow-up drilling.
Mr Sansom said the company had doubled the gold resource to 1.8 million ounces since February, "and these latest results demonstrate there is plenty more to come''.
He added:
With five rigs drilling, assays pending from 30 holes and much of the 16km mineralised corridor still untested, we are well positioned to deliver further Resource growth and new discoveries.
Shares looking cheap, broker says
Barrenjoey said in its research note that continued exploration success "could enable development of a relatively large (5 million tonne per annum), purpose-built processing plant capable of producing more than 150koz of gold per year''.
Barrenjoey's price target assumes first production from a mine at Mt Henry in FY32.
They said:
Our development scenario includes an open pit mining operation, feeding a 5Mtpa carbon-in leach process plant sourcing ore from the Selene, Mt Henry and other minor deposits. Our mining inventory is based on projected resource growth at the Selene and Mt Henry deposits and assumes exploration success within other parts of the project area. Utilising a 12% weighted average cost of capital and a US$4,000/oz gold price, our development scenario generates a build date net present value of $1,729m with life-of-mine average annual gold production of about 153koz.
Barrenjoey has a price target of $3.05 on Sinclair shares compared to $1.07 currently.
If achieved, this would constitute a 185% return. Sinclair Gold is valued at $200.5 million.
