Fox Davies: Buy Highland Gold at 112p with a 181p target

Fox Davies has published a broker research report this morning on yesterday’s H2 production numbers from AIM listed Russian gold miner Highland Gold (LSE:HGM), a stock I also favour. The note is upbeat and reads:

“Highland Gold has released its production figures for the 2H of 2012. Production for the half was 106,185oz of gold equivalent, taking production for the full year to 216,885oz of gold equivalent.

This was a good performance from Highland, beating guidance which was production between 200 and 215koz of gold equivalent. Better still, guidance for 2013 has been increased to between 225 and 240koz of gold equivalent. The growth in 2012 was driven by a better performance from MNV, which produced 79.7koz in the 2H, taking production to 148.5koz for 2012. Higher throughput and recoveries more than compensated for the lower grade processed. The grinding and gravity circuit upgrades have led to a 2% increase in recoveries taking them to 91.9% in the 2H and they are expected to remain above 90% going forward.

At Novoshirokinskoye, attributable production increased to 32.4koz of gold equivalent in 2H, taking production for 2012 to 64.4koz equivalent. The attributable production was up, due to Highland increasing its owner ship from 48.3% to 96.5% very late in 2011. Without the ownership increase, attributable production would have fallen. As we have often said, this mine is really a lead/zinc mine with gold credits. However, the lead and zinc prices are quite strong at the moment and this will help boost profitability in 2013.

Belaya Gora made a small contribution of 3.9koz for the year. However, this mine is to be commissioned in the current quarter and we expect significant contribution in 2013.

On the exploration front, positive results from the three targets around the MNV mine have significant potential to extend the mine life and the acquisition of the Western Flank licence adds significant potential. Overall, there has been a 2.2Moz increase in the JORC compliant resource base to more than 13Moz since 31 December 2011.

We have maintained the BUY recommendation, with an unchanged Target Price of £1.81.”

I published a more detailed analysis and share tip with a 200p target price yesterday which you can read here

Tom Winnifrith writes for 10 UK and US websites – links to all of his work on those sites but also stacks of unique content can be found on his own blog www.TomWinnifrith.com

You can get alerts on all of Tom’s articles and thoughts by following him on twitter @tomwinnifrith

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Comments

1. Chris says:

   January 31, 2013 at 11:17 am

   Will take a look, thanks for the tip

2. Chris says:

   January 31, 2013 at 11:18 am

   Whats the best way to analyze mining companies?

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