Stock re-rating expected for Sunridge Gold as low-cost operations develop
Friday, April 03, 2015 by Alessandro Bruno
Sunridge Gold (CVE:SGC) had its buy rating reiterated by HRA Advisories in an update on the company's project in Eritrea and developments for 2015 today. The equities research firm suggests that Sunridge could see a favourable re-rating based on the company’s considerable upside potential and the fact that it is weeks away from a mining permit.
The junior gold company will be focused this year on the first stage of its multi-staged production plan for its Asmara joint venture, namely the high grade supergene ‘direct shipping ore’ (DSO) copper material that can be shipped directly to the smelter, instgead of having to be upgraded in a concentrator before shipment.
HRA says that management has received interest from equipment suppliers for the DSO phase on the back of "extremely fast payback and a desirable DSO product", with Sunridge confident it can secure attractive vendor financing for mining equipment and a loan to cover initial working capital for the DSO operation, saving Sunridge from having to dilute its stock.
The direct shipping ore operation would be at the Debarwa deposit, one of the four that make up the Asmara project for which Sunridge completed a feasibility study in May 2013. Debarwa would have a pivotal role in the project's overall phased mining plan, which yielded a net present value of US$428 million post tax and an IRR of 27 percent using a 10 percent discount rate.
"This phased approach is similar to the very successful Bisha mine in Eritrea operated by Nevsun (NSU-T)…Nevsun moved from being a gold producer to a copper mine and will transition again to being mainly a zinc mine in about a year," HRA said.
"Asmara shares this characteristic and Sunridge's management is using that to plan a mining operation that minimizes the capital outlay and maximizes early stage cash flow."
The Asmara project allows for a staged mining process that could generate cash flow of up to C$0.30/share very quickly after a permit approval, the report continued.
Indeed, the DSO operation allows for a processing method based on crushing and screening, avoiding the need for a mill, and keeping costs much lower than a conventional mining operation.
This characteristic holds the ‘wild card’ for the overall prospects of Asmara, which has high potential for a takeover offer. HRA said Sunridge continues to attract the interest of larger mining companies, particularly in Asia, which has invested heavily in East Africa.
Given Debarwa's low impurities, "the ore should generate a lot of buyer interest from smelters and attract a good price…At current metal prices Debarwa ore is worth over $1000/tonne."
HRA adds that as much as Sunridge managers would like to see their project through to conclusion, they would not "ignore a significant serious offer."
The company is weeks away from a mining permit, with such approvals having triggered large share price re-ratings in the past for other companies. HRA noted that engineers were "highly complementary" about the quality of Sunridge's work when assessing the mining plan.
The Asmara project is owned and operated by the Asmara Mining Share Company, which is held 60 percent by Sunridge and 40 percent by the Eritrean National Mining Corp (ENAMCO).
Received on Fri Apr 03 2015 - 05:48:59 EDT