Kinbauri Gold Corp > Message
Kinbauri Gold Corp. Stock Rating: SPECULATIVE BUY(KNB-TSX.V, $0.85) 12-Month Target: $2.00M&A Activity Highlights Kinbauri’sValueHIGHLIGHTS1. Eldorado Gold Makes Bid For Frontier PacificEldorado Gold (ELD-TSX, Not Rated) announced a bid for all theoutstanding shares of Frontier Pacific Mining (FRP-TSX, Not Rated),offering 0.122 ELD common shares for each FRP share,representing a 28.6% premium to Friday’s close of $0.70. Theproposed transaction values Frontier at $157 million on a fullydiluted basis. If we adjust the Market Capitalization to reflect a 50%ownership in the Macusani uranium project in Peru as being the fullvalue of partner Solex Resources Corp. (SOX-TSX.V, Not Rated),then the uranium assets could be valued at $22m. Thus thepurchase price for the gold assets in Greece could be valued at$135 million or $97 per ounce. Frontier Pacific has since issued astatement indicating they do not view the proposed acquisition asfairly valuing FRP shares.2. M&A Activity Continues – KNB An Attractive TargetWe view Frontier Pacific as comparable to Kinbauri, being alsolocated in a politically stable European nation. See Exhibit 1. WhileFrontier Pacific will be an open-pit operation and Kinbauri will bean underground operation with higher operating costs, Kinbauri isat a more advanced stage, with operations potentially commencingas early as 2010.3. Kinbauri Undervalued at $34 per OunceKinbauri is currently trading at $34 per ounce based solely on the El Valle and Carles gold ounces. This does notinclude Resources from Corcoesto (with NI 43-101 compliant Resource of 342,000 oz) or the 137 million pounds ofcopper at El Valle and Carles. If Kinbauri were valued at $97 per ounce, similar to Frontier Pacific, Kinbauri’s shareswould be worth $2.48 on a fully diluted basis, in comparison to our 12-month target price of $2.00 per share.4. We Expect Steady Progress Toward An Improved Resource At Year EndInfill and step-out drilling continues at Area 107 and at Black Skarn with 4 underground drills. We expect steadynews flow and results to increase the confidence level of the Resource. Kinbauri remains on target to complete23,000m of drilling by the end of July to be followed by the commencement of a feasibility study and production asearly as 2010.Conclusion and RecommendationWe believe Kinbauri’s continuing exploration and infill drill program will yield positive results and increase theconfidence level of the Resource, leading to the commencement of a feasibility study later in the year. The discovery of anew zone, BNS West, illustrates the under-explored nature of the deposit and potential to increase Resources. Wereiterate our SPECULATIVE BUY recommendation with a target price of $2.00 per share.Gary Baschuk (416) 343-2779Angela Lam, Associate (416) 343-4209April 22, 2008Clarus Securities Inc.
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