With the Paterson area of Western Australia seeing a resurgence of exploration interest, Wishbone Gold PLC's (AIM:WSBN, AQSE:WSBN) Red Setter, Cottesloe and Anketell projects are "well placed" and the company is an "under-recognised" explorer.
Those are the thoughts of analyst John Meyer at broker SP Angel in an initiation note on the company, which noted that Wishbone's projects show similar lithological and structural settings to other notable finds nearby.
Interest in the Paterson area has been sparked by the discoveries by Rio Tinto at Winu and Newcrest and Greatland Gold at Havieron.
Initial exploration at Red Setter demonstrates "clear similarities" with the nearby Telfer Dome which hosts Newcrest’s 400k oz per year Telfer mine, Meyer said, while Cottesloe hosts similar lithologies and structural context to the Nifty copper mine.
Analysis of historic exploration at Cottesloe shows important targets for drilling this year, partially funded by an A$220,000 government grant.
"Pre-resource mineral exploration companies are difficult to value however the Paterson region is attracting significant exploration interest and we see that currently with a market value of less than £4mln Wishbone Gold attracts the second lowest market valuation of a group of 11 exploration companies (including itself) operating in the region which suggests that exploration success could trigger a meaningful re-rating of market perception," wrote Meyer.
For an alternative approach to valuing Wishbone, the SP Angel team analysed a selection of predominantly West Australian gold exploration and development companies to provide investors with a potential valuation roadmap once Wishbone has produced a JORC/NI43-101 compliant mineral resource estimate (MRE).
In addition to this, the team provided an example of recent exit multiples that have been generated from mergers or acquisitions, which highlight the potential for premium multiples for assets in strategic locations.
"We recognize that Wishbone is several years away in terms of development in comparison to the highlighted projects," the analyst noted.
Looking at the range of junior gold projects using a valuation multiple of enterprise value (EV) versus measured, indicated and inferred resources (MII), this generates a significant range of results between $7/oz to $527/oz.
Towards the lower end of the spectrum lie Kalamazoo ($7/oz), Terramin ($12/oz) and Kairos Minerals ($13/oz), while at the higher end are more advanced projects, including Capricorn Metals which trades at $240/oz on an EV/MII basis and Greatland Gold which enjoys a premium multiple of $540/oz multiple when calculated for attributable ounces.
"Our sample of selected peers suggests a median multiple of $48/oz, with projects closer to production, whether it be in the scoping study, PFS or FS stage, sitting towards the 75th percentile of projects analysed at >$100/oz on an EV/MII basis."
In terms of M&A activity in the region, the recent acquisition offer by Westgold for Musgrave Minerals at $131/oz on a fully diluted basis "highlights the premium multiples larger industry players are willing to pay for de-risked assets in their sphere of influence and accessible to their production infrastructure", Meyer said.