From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Mon May 31 2010 - 09:12:21 EDT
Sunridge Gold : Stepping up the pace in Eritrea
by <http://proactiveinvestors.com/about_us> Jackie Steinitz company news
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Monday, May 31, 2010
Sunridge Gold Corporation, one of the early movers in the Eritrean Gold Rush
and the first to attract a major JV partner to the country, is stepping up
the pace and size of its exploration program at its large and highly
prospective copper/zinc/gold/silver Asmara project. The project lies
immediately to the north, west and south of the Eritrean capital, Asmara. As
part of the current work program Sunridge is investigating the possibility
of fast tracking copper production from a small but high grade zone of one
of its deposits in order to generate cash within 18 months.
The company has already notched up a number of notable successes. Perhaps
the most tangible is that it has discovered and advanced four deposits in
the area which together contain indicated 43-101 resources of 1.28 billion
pounds of copper, 2.5 billion pounds of zinc, 1.05 million ounces of gold
and 31.8 million ounces of silver. The most advanced of these deposits is
Emba Derho where a scoping study, completed in June 2009, concluded that
open pit mining could be conducted for 10 years in the base case at an
annual rate of 4M tonnes and at an operating cost of $21/tonne. The pre-tax
NPV of the deposit in this case would be more than $200M, assuming average
metal prices for the 5 years to June 2009 (i.e. gold at $650/oz and copper
at $2.50/lb) while the IRR would be 21.6%.
But there may be more deposits to come. Recent ground gravity surveys have
identified larger and stronger gravity anomalies than those of the known
deposits. These, together with other coincident electromagnetic, geochemical
and surface anomalies have enabled Sunridge to advance several new high
priority targets to the drill ready stage.
A further success has been the JV with the Chilean copper giant Antofagasta,
announced in September 2009. Under the terms of the agreement Antofagasta
purchased an 18% stake in the company through the acquisition of $5m worth
of common shares. It also agreed to fund $10m of exploration over five
years to earn a 60% interest in the areas of the project (the 'Exploration
Areas') which are not already in the four defined resources (the
'Development Areas'). Antofagasta may earn a further 15% by completing a
feasibility study on any project in the Exploration Areas (see the Proactive
Investors article of 2 October 2009 for more detail). The JV has brought
cash and expertise to the project and has acted as a strong endorsement of
the potential of both the project and the country.
Sunridge has also recently been successful in extending its project area; in
January 2010 it was awarded licences for an additional 5km on both the
western and eastern margins of the project. Together these additions
represent a 60% increase in the licence area, which now totals some 1065
square kilometres (an area not far short of, say, the size of Los Angeles).
The company believes that these extensions include continuations of the
known mineralisations.
Current Work Program
So with drill targets ready, four known deposits, more land to explore,
$5.7M cash in the Treasury following the Antofagasta investment, and
Antofagasta's $10M commitment to fund the program in the Exploration Areas
Sunridge is now almost midway through a busy year's program. Several
parallel workstreams are underway.
In the Exploration Areas the JV has drilled 12 holes at the Daero Paulos
copper target, commenced a 4-hole drill program at the Adi Rassi copper-gold
prospect and will be embarking shortly on a third drilling target. Regional
target generation covering all parts of the exploration areas using stream
sampling, satellite imagery analysis and mapping is also being undertaken.
Meanwhile in the 100%-owned Development areas 4 holes have been drilled this
year at the Debwara copper-gold-zinc volcanogenic massive sulphide (VMS)
deposit, in addition to the 30+ holes drilled to define the maiden resource.
Results released in February showed that the mineralisation had expanded
both down dip and along strike and that a new Eastern limb had been
discovered. The deposit remains open in several areas. Drilling will
continue at Debarwa and Emba Derho and the two nearby satellite deposits
(Adi Nefas and Gupo Gold); prefeasibility studies on all the deposits will
begin shortly. Sunridge may also be looking for a partner to help develop
these deposits.
In March Sunridge commissioned Toronto-based PEG Mining Consultants to
conduct a Strategic Production Engineering Study to examine mining and
processing options for the known deposits on the project. The study will
initially focus on the viability of fast-tracking the mining and shipping of
a high-grade copper section (comprising some 60-80,000 tonnes at a grade of
15-20% copper) of the Debarwa zone, an option which could have low capital
cost but generate cash for the company within 18 months. Total revenues
from this section could be in the order of $75-80M. It will then focus on
the compatibility of mineralisation for combined ore processing and on the
longer term objective of optimising mining/production from the project.
Analysis
Eritrea lies on the Arabian-Nubian shield which lies astride the Red Sea and
hosts deposits stretching from Jordan and Israel through Saudi Arabia and
Yemen to Egypt, Ethiopia, Eritrea and Sudan. Although the Shield hosts some
large deposits, (including Centamin's 13 million ounce Sukari gold project),
and some of the earliest gold discoveries known to man, (allegedly including
King Solomon's gold), there has been little exploration in Eritrea until
recent times.
But now that is changing and Eritrea is acquiring a reputation as a new
mining frontier. It now has an 'open for business' mining policy - the
mining code is based on that of the Northern Territory of Australia - there
is some artisanal gold production and more than a dozen companies are
currently exploring in the country. Eritrea's first mine, Nevsun's
gold/copper/zinc mine at Bisha, which has resources of 1 million ounces of
gold, 9 million ounces of silver, 734 million pounds of copper and over 1
billion pounds of zinc, is due to come onstream by the first quarter of
2011. It is anticipated to be both low-cost and high-grade.
Sunridge was an early mover in the Eritrean gold rush; it acquired its first
interests in the Asmara project in 2003 on the recommendation of geologist
John Clark, formerly of Ashanti who had significant experience working
across Africa and viewed Eritrea as the most prospective country at the
time. It has reaped the benefit of this early interest as it was able to
acquire a large and geologically prospective land package with a fantastic
address. While the Asmara project is not unique there are certainly not
many other projects which spring to mind which are within 15km of a capital
city. The project's location means that it is close to power (the power
station is just a few kilometres distant), roads, rail, an airport and
labour. The nearest deepwater port, Massawa on the Red Sea is just 120km
away. There is plenty of groundwater on site as the area is 2000 metres
above sea level on a plateau with a river and a dam within the project area.
There is clear evidence too that the area is highly prospective; the in
ground value of the resources of the known deposits at today's prices
exceeds $8bn.
The JV with Antofagasta has demonstrated that a major also has faith in the
prospectivity of the project and in the mining framework of Eritrea.
Antofagasta, which produced 440,000+ tonnes of copper at its Chilean
operations last year and which has a market cap of over $12bn, conducted
considerable due diligence into both the project and Eritrea. Sunridge's
share price doubled from under 40 cents in August 2009 to over 80 cents by
October following the announcements about the JV. However it has since
fallen back to 40 cents, possibly partly in response to a higher political
risk discount since December 2009 when the UN imposed sanctions on Eritrea.
To date, according to Executive Vice President Don Halliday, sanctions do
not appear to have had a major direct effect on business in Eritrea but they
have affected the investor perception of it.
For the moment Sunridge has sizeable indicated resources, an experienced
management team (including four people who previously worked for Nevsun), a
prestigious JV partner and considerable upside potential for more
discoveries. There is the likelihood of plenty of newsflow this year from
both the Exploration and Development areas of the project. If Nevsun's mine
begins production on schedule by the first quarter of 2011 this could
provide a significant filip to investor confidence, though the share price
will always remain vulnerable to commodity price risk.
Sunridge's market capitalisation is currently C$28M compared to Nevsun's
C$600M (though, of course, Nevsun is some 3-4 years further down the
development road).
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