Norseman Gold (LON:NGL, ASX:NGX) continues to offer more upside than any other London-listed gold producer, according to Seymour Pierce analyst Asa Bridle.
In a note entitled ‘North Royal niggles’ the analyst cut his forecasts from the AIM-listed gold company, following the recent news that it would not achieve its production targets.
However Bridle still thinks the shares could be worth 165 pence a share – which gives the stock a massive 283 percent upside from the current price of 43 pence.
The Norseman mine in Western Australia is the country’s longest continuously running gold mining operation. In recent years the company has focused on new development project to find new resources and increase production, helping it give the ageing mine a new lease of life.
Earlier this month the company revealed that it is going to take longer than it expected to reach the ‘hard rock’ material in the North Royal pit, and instead it is still processing the lower-grade oxide material. This came alongside declining production at the Bullen and Harlequin parts of the mine and slower-than-expected ramp up at the Okay decline. Consequently it has had to cut its production targets.
Norseman shares have fallen from highs of 84 pence back in November 2010 to current levels, just above the 40 pence mark.
“Clearly, the downgrades made to production guidance are impacting on the stock’s short term performance and the onus is now on management to achieve the revised FY11 target and then push for the medium term goal of 140,000 per year to drive the share price re-rating,” Bridle said.
He adds: “Given the investment opportunity, we believe that the continuing support of shareholders is fully justified.
“Now the gold needs to follow to drive the re-rating.”
Bridle explained that although the mining of the low grade oxide material got underway as scheduled, the dewatering process exposed the pillar above an old underground mine portal, which Norseman expected would consist wholly of ‘fresh’, hard rock ore. However so far only lower grade ore has been encountered.
The analyst highlights that ‘hard rock mining’ will start after July, which will then be part of the 2012 financial year.