Analyst rates Avoca upside From Mining News Paul GarveyTuesday,...

Analyst rates Avoca upside
From Mining News

Paul Garvey
Tuesday, 17 April 2007

GOLD developer Avoca Resources stands to become "one of the more profitable gold companies" over the next few years, according to a new research report out of Hartleys.

Hartleys analyst Andrew Rowell pointed to the forecast cash costs, exploration upside and Avoca's management team as factors in his Buy recommendation on Avoca, which is expected to generate cash flow from its Higginsville project during the current quarter.

"We believe that Avoca will be one of the more profitable gold companies over the coming years, with competitive forecast cash costs of $A369/oz over the mine life, no mandatory hedging and a production rate of 190,000 ounces per annum once fully commissioned," Rowell said.

"A technically and commercially strong management is in place to capitalise on opportunities."

While the initial mine life of Higginsville currently stands at four years, Rowell said he expected ongoing exploration work at the project to more than double that.

"Most of the historical exploration on Avoca's tenements was focused on the delineation of opencut resources.

"Only 1% of the holes drilled to date have penetrated deeper than 250m, leaving open the potential for ore sources related to openpit extensions, historical workings and palaeochannel sources."

Rowell also described the $125 million financing deal announced earlier this month by Avoca as "a very good package".

In addition, Rowell said Avoca had the potential to be a consolidator of other gold projects in the area around Higginsville.

"The construction of a processing plant at Higginsville also opens up the potential for the acquisition or joint venture over other companies' deposits that are currently 'stranded'," Rowell said.

Hartleys' base case valuation for Avoca stands at $1.24 per share, while its expanded case valuation – assuming an increasing of the mine life out to nine years – values Avoca at $1.72.

Shares in Avoca rose 4.5c to $1.59 in morning trade today, at one stage touching a new all-time high of $1.60.