Cantor Fitzgerald has raised its target price on Trilogy Metals (TSX: TMQ; NYSE-AM: TMQ) to US$3.50/C$4.50 per share from US$3.00/C$3.75 per share following a recent site visit of the company's Artic and Bornite projects in northwestern Alaska.
The high-grade Bornite copper-cobalt and Arctic polymetallic projects are part of Trilogy's Upper Kobuk mineral projects (UKMP) in Alaska's Ambler mining district.
"Despite Trilogy's share price consistently making new all-time highs, the company continues to trade well below the intrinsic value of Arctic on a standalone basis," Cantor analysts Mike Kozak and Michael Wichterle write in a research note. "Investors are effectively getting the Bornite project, and its highly strategic cobalt component, for free."
Trilogy updated the market on its summer activities at UKMP on Aug. 23, and reported partial results from the first hole this year at Bornite that returned a 16.4 metre interval grading 5.34% copper and 0.21% cobalt, intersected at a depth of 791.9 metres, from drill hole RC18-0247.
"Given that we have only received assay results from one drill hole as part of the 2018 exploration program (and from only the lower portion of the hole at that) there is insufficient data to predict what the Bornite deposit will grow to in the next 43-101 compliant resource calculation scheduled for Q1/19," Kozak and Wichterle write. "That said, should the remainder of the drill holes as part of the 2018 program return grades and widths similar to those reported in RC18-0247, a resource at Bornite in the 10+ BBlb copper and 100+MMlb copper at better grades, is certainly an achievable target."
Bornite is being funded by South32 (LON: S32) under a joint venture whereby South32 will spend US$150 million over three years to earn a 50% interest in the junior's Alaskan assets.
"The 2018 drill program [at Bornite] has been extended by several weeks," the Cantor analysts add, "as South32 has advanced an additional $0.8 million, to complete four additional holes."
Trilogy recently calculated a cobalt resource for Bornite and completed a positive prefeasibility study of Arctic.
The Arctic and Bornite assets were spun-out from NovaGold (TSX: NG; NYSE: NG) in 2012.
The Cantor analysts reason that Trilogy is a likely takeover candidate.
"Part of our investment thesis on Trilogy Metals has always been that it will likely be consolidated at some point in the future by South32, or another large-tier producer," they argue.
"In our view, the advancement of Arctic/Bornite and the ultimate fate of Trilogy Metals, will likely play out similar to Arizona Mining, whereby South32 will end up acquiring 100% of the company at a sizeable premium."