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VSA Capital Market Movers - NuLegacy Gold Corp, Independent Oil & Gas PLC

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Independent Oil & Gas (LON:IOG)#

Independent Oil & Gas (LON:IOG) has announced the results of its recent CPR on the Vulcan Satellites, Blythe and Elgood assets. The key finding of the report is a significant increase in gas reserves from 34 BCF to 303BCF on a 2P basis with the uplift coming primarily from the Vulcan Satellites which now have 2P reserves of 248 BCF. At Blythe 2P reserves were unchanged at 33 BCF while at Elgood reserves increased to 22 BCF.

The increase in reserves has enabled IOG to demonstrate the economic viability of the project following 3D seismic analysis, well design and placement as well as hydraulic stimulation on the Vulcan Satellite. Consequently, IOG has received production forecasts for each field with peak production from 2P reserves indicated at 200 MMcfd. Initial capital for the whole field is projected at £466mn while the pre-tax NPV using a conservative 10% discount is £453m.  

We do expect a further increase to resources at Harvey with a CPR due. The gas hub strategy using the Thames pipeline should enable IOG to scale the project at relatively limited capital expense. We therefore view this CPR as a robust base and additional exploration success is likely to further enhance the economics.

We reiterate our Buy recommendation

Multi-Million Ounce Potential

NuLegacy (CVE:NUG) holds the largest independently owned land package within the Cortez gold trend in Nevada. During 2017 the company has significantly expanded the footprint of mineralisation amongst Carlin Type Gold Deposits (CTGDs) within the license area, building on the existing exploration target* of 90-110mnt at between 0.9-1.1g/t Au. New zones, Serena and the Western Slope drilled for the first time in 2017 yielded intercepts of 85.4m at 0.64g/t including 50.3m at 1.00g/t Au from 133m.

NUG has identified a significant cluster of oxidised gold deposits; however, it has yet to identify the high grade zones of mineralisation typically associated with the centre of CTGDs. We believe that identifying these zones offers significant upside potential for investors, however, we stress that this is not a binary investment case reliant on this type of discovery. The region’s strong infrastructure, the shallow depth of the mineralisation and potential for low cost heap leaching indicate to us that the deposits determined to date are sufficiently attractive to warrant further development.  

Support From the Region’s Experts

Barrick (NYSE:ABX) has discovered some of the world’s leading gold deposits in the immediate vicinity of NUG’s license area, including Cortez Hills (15mnoz+), Pipeline (21mnoz+) and Goldrush (10mnoz+). ABX opted to take equity in NUG and now holds approximately 10.9% of the shares. There is a strong relationship between the two companies and three former ABX executives hold directorships at NUG. Also, NUG’s Chief Geoscience Officer and Co-Founder, Roger Steininger, is credited with discovering the Pipeline deposit and is one of the region’s foremost geologists. The senior management team and Board of Directors in place at NUG significantly strengthen the investment case, in our view.

Recommendation

We believe that the large footprint of oxidised gold mineralisation that NUG has established to date across multiple deposits forms an attractive base for future exploration. With C$11m in cash, backing from ABX and a strong senior management team we believe that NUG is well placed to further the development of these attractive assets. We expect strong newsflow over the balance of 2017 as a 14 hole (c.4.9km) programme has just begun.

We initiate coverage with a Speculative Buy recommendation.


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