Dakota Gold Corp. (DC:NYSE American) and its recent exploration success caught the interest of BMO Capital Markets, which initiated on the gold explorer with a Speculative Outperform rating and a $6 per share target price, reported analyst Andrew Mikitchook in a Sept. 6 research note.
"Dakota appears to have one of the crown jewels of exploration in its cross-hairs—it has made a high-grade discovery that could have scale," Mikitchook wrote, referencing the JB gold zone at Dakota's Maitland gold project in South Dakota.
Room for 159% upside
BMO's rating and target price are based on the value of the JB gold zone discovery, Mikitchook wrote. From Dakota Gold's current share price of about $2.32, the return to target is 159%.
"There is room for Dakota shares to rerate as the JB gold zone is derisked through exploration successes to deliver a sense of scale," the analyst added.
Main value driver
Mikitchook discussed the new discovery and why it could be a game changer for Dakota Gold.
"JB gold zone is among the most notable new discoveries globally," the analyst wrote.
JB is part of Maitland, one of the U.S.-based explorer's two gold projects in the historical Homestake mining district; the other is Richmond Hill. Both are at the 48,000-acre land package the company has consolidated, covering the direct northern extension of the past-producing Homestake mine. This mine produced more than 40,000,000 ounces (40 Moz) of gold during its 124 years in operation.
"In our opinion, the JB gold zone is likely to be the main valuation driver for Dakota," wrote Mikitchook. "The proximity and geological similarities to the long-running Homestake mine suggest potential for scale at the JB gold zone."
The JB discovery comprises three high-grade ledges showing the same geology, mineralization, thickening, orientation and structural corridor as the West Ledge system that historically produced about 6 Moz of gold at Homestake, the analyst highlighted. The quality and potential of JB are comparable to that of other global high-grade discoveries, like Osisko Mining Inc.'s (OSK:TSX) Windfall, Great Bear Resources Ltd.'s (GBR:TSX.V; GTBDF:OTCQX) LP Fault zone and New Found Gold Corp.'s (NFG:TSX.V; NFGC:NYSE.American) Keats and Iceberg.
Another, previous, discovery of Dakota Gold at Maitland is the Unionville zone, of lower grade, Tertiary-style mineralization potentially conducive to bulk mining. Also at Maitland, through an analysis of historical drill results and regional geophysics, the explorer identified three additional areas that could contain Homestake-style mineralization: North Drift, City Creek and Blind Gold.
At its other project, Richmond Hill, Dakota Hill defined an initial oxide, near-surface gold resource analogous to that of Coeur Mining Inc.'s (CDE:NYSE) nearby, operating Wharf open-pit, heap-leach mine.
"This asset could represent a near-term modest gold production opportunity that could generate cash flow to fund advancing the JB gold zone discovery," noted Mikitchook. Unionville and undrilled targets at Richmond Hill "provide synergies to value creation at the JB gold zone and Richmond Hill oxides."
The analyst noted that Dakota Gold has a nonbinding proposal with Orion Mine Finance for up to $300 million ($300M) of financing support for any future construction and development of Dakota's assets. Orion has the right to match any future financing of Dakota Gold once Dakota has cumulatively raised over $200M.
Collection of talent
Mikitchook described Dakota Gold's management team as having the skill and experience necessary to advance an exploration project to mine development and to create shareholder value.
The career of one of the company's co-chairs, Robert Quartermain took Pretium Resources Inc.'s (PVG:TSX; PVG:NYSE) Brucejack mine from discovery to sale. His career led to his induction into the Canadian Mining Hall of Fame. Dakota Gold's other co-chair Stephen O'Rourke has worked in oil and gas exploration and production for the likes of BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and Shell Plc (SHEL:NYSE).
Dakota Gold President and Chief Executive Officer Jonathan Awde co-founded and developed Gold Standard Ventures Corp. to the point it was acquired by Orla Mining Ltd. (OLA:TSX; ORRLF:OTCMKTS).
Also, several Dakota Gold executives have worked at the historic Homestake mine, including Chief Operating Officer Gerald Aberle and Vice President of Exploration James Berry.
What to watch for
Investors can expect a steady flow of results as drilling continues this year and into the next, from the JB gold and Unionville zones at Maitland and from Richmond Hill, where four rigs are active, Mikitchook wrote. Any exploration success, discovery of other high-grade zones, at Maitland that will increase the scale will benefit the stock.
Also coming up, for Richmond Hill, is an update to the 2024 resource estimate, potentially in Q1/25. An initial assessment with cash flow, the equivalent of a preliminary economic assessment, could be out in as early as Q2/25.
Ownership and share structure
Mikitchook pointed out that Dakota Gold insiders own about 25% of the company's shares, indicating management is aligned with shareholders.
Of all investors, the Top 5 are: Orion Mine Finance with 9 million (9M) shares or 9.9%, Robert Quartermain with 7.5M shares or 8.1%, Jonathan Awde with 6M shares or 6.6%, Fourth Sail Capital with 4.6M shares or 5.1% and Gerald Aberle with 4.2M shares or 4.7%.
Dakota Gold has 105.3M fully diluted shares. This encompasses 90.9M shares outstanding, 4.6M stock options, 1.5M restricted share units, 0.7M performance share units and 7.6M warrants outstanding.
The company's market cap is $217M.
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