Trading Ideas |
Thursday, March 13, 2014
RS: Roxgold Inc.'s (ROG:TSX.V) recent preliminary economic assessment at its Yaramoko project in Burkina Faso is projecting a metal grade of 11.9 grams per ton (11.9 g/t) in the first five years. That results in a low cash cost of just $455/oz, a high 47.7% internal rate of return and only a 1.4-year payback on initial capital. So you can see the big effect there.
TGR: Yaramoko's initial capital expenditure is only $93.8 million ($93.8M). Isn't that quite low?
RS: Yes.
Brent Cook, Exploration Insights (2/23/14) "Roxgold Inc. will be releasing the results of an independent feasibility study by midsummer. We should anticipate a fairly robust result in line with the preliminary economic study that showed an after-tax NPV 5% of US$192M, with an internal rate of return of 47%. Yaramoko is one of a very few high-margin, low-capex, undeveloped projects on the market." Tara Hassan, Haywood Securities (2/20/14) "Larger claims at ROG's Yaramoko contain many worthy targets, including Bagassi South, 117 zone, Haho and the ground along the Boni Shear zone. Although many of these targets are still in the early stages, initial results suggest that there is potential to meaningfully extend the life at the project or boost annual production from satellite targets." Pierre Vaillancourt, Macquarie Equity Research (2/7/14) "SRK Ltd. (Roxgold Inc.'s mining engineering consultant) is advancing the feasibility study for the 55 Zone. . .we anticipate that the integration of more structural and statistical data into the model will result in a more robust resource, with better constraint and definition to the high-grade gold in the 55 Zone. . .there is potential for approximately 700 Koz in the top half of the mine (to 500m), and another 600 Koz in the bottom half of the deposit. . .we anticipate the feasibility study could produce a shallower, more productive mine, with a better overall reserve recovery rate. . .we maintain our Outperform rating." Wednesday, March 12, 2014
March 2014, Jeff Kileen
Orezone is operating an exploration program at Bomboré project in Burkina Faso. The company has completed scoping studies and is trying to move toward feasibility. The project return may be smaller than what many in the investment community would look for in a new developable asset. The company is looking at how it can reduce the upfront capital expenses (capex) and potentially reduce the operating costs for Bomboré, as well as improve the metallurgy. How those elements come together toward the later part of this year certainly could change the way that we view that project. http://www.theaureport.com/pub/na/jeff-killeen-a-picky-players-guide-to-a-cautiously-optimistic-mining-market 6) Add a short-term trading position in Orezone Gold (ORE.TO) at Friday's closing price of C$0.65. Here's a synopsis of the ORE story, including our reasons for thinking it makes a good short-term speculation: ORE owns the Bombore project, an exploration-stage gold project in Burkina Faso with 4.6M ounces of M&I resources at an average grade of 1.01-g/t. The total resource is really two deposits -- a near-surface 1.3M-ounce deposit suitable for heap-leach (HL) mining and a larger/deeper sulphide deposit that would have to be mined via a different method (perhaps carbon in leach (CIL)). The sulphide deposit has option value, but is probably not economic at the current gold price. However, a recently completed PEA indicates that the HL-amenable deposit could, for a capital cost of about $180M, be developed into a profitable 120K-oz/yr mine at a gold price of $1250/oz. Specifically, the PEA estimated that at $1250/oz the HL mine would have an IRR and NPV(5%) of 23.9% and US$159M, resp. These are better-than-average economics. ORE has 96M shares outstanding, so at its current price of C$0.65 its market cap is about C$62M. It also has about $10M of cash, so its current enterprise value is about $52M. The enterprise value is a long way below the estimated NPV of the proposed HL mine, but ORE's valuation is in line with the valuations of many other exploration-stage gold miners. Under-valuation is more the norm than the exception at this time. ORE's valuation is attractive, but not unusually so. What draws us to this stock is the combination of attractive valuation and constructive price action. With reference to the following chart, it looks like ORE completed an 8-month basing pattern when it recently broke above C$0.60. There is a risk that the stock will pull back as far as the low-C$0.50s before resuming its advance, but the optimum place to take a trading position would be in the low-C$0.60s (at or just above the breakout level). The chart pattern suggests short-term upside potential to C$1.00-$1.20.  |
