Australia | May 23 2007
By Greg Peel
"The grade of these intersections compare very favourably with Newcrest Mining’s (NCM) highly profitable Ridgeway deposit, which currently produces gold at a cash cost of negative A$271 per ounce after copper credits. The dimensions of the Red Dome deposit lends itself to similar bulk underground extraction and every effort will now be made to fast track its development. This will involve extending the current drilling program to quantify the extent and relationship of the gold, copper and molybdenum rich zones within the Red Dome deposit which remains open to the north west and at depth."
So said Kim Robinson, Executive Chairman of Kagara Zinc (KZL) in an ASX announcement yesterday. Kagara is a small/medium base metal miner and explorer with a focus to date on zinc and copper. Only three major stock brokers in town include Kagara in their resource coverage so far. Two of those brokers betrayed their excitement in reports issued this morning.
Kagara’s Red Dome project stands alongside its Mungana project near the historical mining town of Chillagoe in Queensland’s tropical north. Initial testing results on the gold-copper-silver-molybdenum deposit have proven highly promising. Between the Red Dome results and the Mungana gold-copper deposits, it is apparent that the Chillagoe area could produce a gold-copper deposit to rival, as Robinson suggests, Newcrest’s Ridgeway deposit in the Cadia Valley of NSW.
GSJB Were analysts noted that the recent drilling was a "step-out down-dip/plunge" and thus (as we all would know) there is potential for a "significant increase" in the total size of the deposit. Said the analysts:
"This is further evidence of the prospectivity of KZL’s land holding and illustrates again why it remains one of our preferred base metal stocks."
Macquarie analysts similarly have a preference for Kagara, having maintained the stock as their preferred small copper-zinc play. Oxiana (OXR) is their large cap preference. Macquarie’s Outperform rating is reinforced as Kagara moves to become a quality polymetallic concern. The ramp up of Kagara’s Thalanga project should bring copper’s contribution to about 70% of the company’s earnings, says Macquarie, and once the market begins to realise the company’s leverage to copper a progressive re-rating should occur.
Macquarie analysts have not yet factored the early Red Dome results into forecasts, but today have lifted their price target to $8.00 from an earlier $7.20.
Weres does not set targets. Its current valuation on Kagara is $4.57 but the analysts do provide an "upside" valuation for mining stocks, which today has been lifted from $8.66 to $9.52. They rate the stock as Outperform (L/T Buy). Kagara closed yesterday at $6.75.
ABN Amro also rates Kagara as a Buy, and set a $7.00 target earlier in the month.