Zacks raises target on Pelangio to $1.10 - Analyst Blog

Zacks raises target on Pelangio to $1.10

Steven Ralston, CFA

Pelangio Exploration (V.PX, PX.V: TSX-V and PGXPF: OTC) is a junior gold exploration company with second phase drilling programs at both the company’s properties located in Ghana: Manfo and Obuasi. The Manfo diamond drilling program has been increased to 40,000 meters while the Obuasi program was expanded to 9,700 meters. In 2011, the company increased its ownership of both the Manfo and Obuasi properties to 100%. The company’s positive drilling results at Manfo coupled with the success in raising funds for the exploration programs prompt us to raise our target to $1.10.

On the Manfo property, over 24,800 meters of diamond drill holes have been completed through the end of 2011. With the addition of a third drilling rig, at least another 13,000 meters are planned during the first half of 2012. During the year, exploration at Manfo continued: Pokukrom East (57 holes totaling 11,506 meters), Pokukrom West (23 holes totaling 4,613 meters), Nfante West (four holes totaling 1,102 meters), Nfante East (five holes totaling 1,098 meters) and Nfante Central (five holes totaling 939 meters).

Drilling results at Pokukrom East have defined a strike length of bulk gold mineralization of at least 850 meters, which is open to the north and at depth. The geochemical anomaly is much longer at approximately 1,200 meters in length. Management plans not only infill drilling at 50 meter spacing but also 100 meter step-out drilling in hopes to increase the strike length to over 1,000 meters. The initial NI 43-101 compliant inferred resource report on the Manfo property is expected in the second half of 2012.

On the Obuasi property, the second phase drilling program was completed with 44 holes totaling 9,710 meters. Targets included the Obuasi Mine trend, Ayaase, Bura, Tikal, Big Vein, Mount Kate South, Government, NT1 and Mampamphwe areas during 2011. In addition, trenching (22 new trenches totaling 2,177 linear meters) and auger drilling (148 auger holes totaling 857 meters) were completed. During the first half of 2012, management plans to continue prospecting, mapping and surveying the Obuasi property, especially on Bura/Tikal corridor, and at Ayaase, where geophysical and geochemical surveys suggest the continuation of the Main Obuasi Mine Trend. In addition, the company will target the trend associated with the NT1, Government Area and Mampamphwe.

Recently, Pelangio Exploration reported financial results for the fourth quarter and year ending December 31, 2011. For the year, Pelangio reported a loss of $3,709,147 versus a loss of $2,493,370 (restated to comply with IFRS) in 2010. For the year, professional fees increased more modestly by 11.1% to $310,159 from $279,090; however, investor relations expenses increased 76.1% due to the company’s need for financial equity funding. Consulting services also increased 24.3%. Stock-based compensation (a non-cash expense) increased 18.6% to $1,230,057.

At year-end 2011 (December 31, 2011), Pelangio had $7,732,269 in cash and marketable securities, no long-term debt, and $46,357,174 in shareholders’ equity. Working capital increased 98% to $6,454,479 from $3,254,097 at the end of 2010. The company does not have any long-term debt, and shareholders’ equity increased 45.1%.

Pelangio has been very successful raising funds for the acquisition of potential mining properties and its exploration program.  During 2011 the company’s cash requirements for exploratory activities totaled $10,177,942 and were funded by $16,919,544 from the sale of securities and the exercise of options and warrants. Importantly, management participated in the public offering in December 2011, raising its ownership in the company from 13.0% to 13.8%. The exploration costs in Ghana were $5,546,532 at Manfo and $3,992,513 at Obuasi.

We reiterate our Outperform rating based upon the attractive valuation level of the stock relative to book value and the expectation that the NI 43-101 compliant inferred resource report on the Manfo property will act as a catalyst for price appreciation. We raise our target to $1.10.
 

To view a free copy of our most recent research report on PX.V/PGXPF or subscribe to our daily morning email alert, visit Steven Ralston's coverage page at http://scr.zacks.com/.

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