International Tower Hill Mines Higher Despite Credit Suisse Downgrade
Credit Suisse downgrded International Tower Hill Mines Ltd. (ITH.TO) to NEUTRAL from Outperform and lowered its target Price to $9 from $10.
Event: "We have updated our model to reflect the latest PEA release from ITH as well as findings from the recently conducted site tour, and consequently our Livengood NAV has declined by 22%. The decline is driven by a 10% reduction in average annual gold production as well as a 17% increase in unit cash costs, relative to our previous expectations."
Key operating drivers: "ITH has decided on a mill-only processing flow for Livengood, which has resulted in a 17% decline in throughput versus the previously proposed mill-heap leach model. In addition, ITH has expanded its resource by reducing the cutoff grade to 0.22g/t from 0.5g/t, resulting in an 8% decline in grades processed, an increased strip ratio and a longer mine life."
Key financial drivers: "Overall capex for the project is now projected at $1.7 billion, versus our previous estimate of $1.9 billion as the heap leach will not be built. However, all $1.7 billion will now be required pre-production, and we model debt financing of $847 billion and total equity financing of $1.1 billion for a 166% dilution to the existing share base."
Strategic options: "Given the development and financing risks facing ITH, we believe the company will strongly consider alternatives to developing Livengood alone, including JVs or an outright sale of the company. We believe the most likely participants are Kinross, Anglogold Ashanti and Newmont.
"Failing a takeover bid, the investment value in ITH lies in its leverage to a rising gold price, with an estimated 26% increase to our NAV forecast for a 10% increase in the gold price. We use a $1,300/oz long term gold price."
Valuation: "We are lowering our rating on ITH to Neutral from Outperform, and we are reducing our target price to C$9.00 from C$10.00. The updates to our model reduce our NAVPS to C$10.29 from C$13.00, to which we apply a 0.7x multiple to Livengood NAV and 1.0x to the cash to arrive at our target price."
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