By The Grandich Letter,
I have followed both Nevsun and Sunridge closely for some time and I have watched the progress of their projects in Ertirea.
Both companies have discovered significant amounts of copper, zinc, and gold in Eritrea. Nevsun was a penny stock but has now taken off and they have a market cap of approximately $900 million I believe the turning point for them was about 4 years ago when they were awarded a mining license and concluded an agreement with the government for the government’s right to purchase 30% of the project. Nevsun has now been in production for almost 2 years and has more than $400 million in the bank with no debt. I still see this as undervalued as they have significant cash, no debt, a producing mine and plant, and they will be transitioning to produce significant base metals this year.
I am confident that 2013 can be the turning point for Sunridge and we can see their market cap begin to reflect the strength of their Asmara Project. Sunridge has always been a few years behind Nevsun and this year we could see a significant revaluation of the stock. The news release issued by the Company which provided an outlook of planned activities over the next several months contained several potential game changing catalysts which I have summarized below:
1./ Concluding Negations with ENAMCO (the Eritrean National Mining Corporation)
Sunridge had announced on December 17 2012 that negotiations have been progressing between Sunridge and ENAMCO within the framework of the country mining code. The conclusion of these negotiations can be a huge breakthrough for Sunridge. ENAMCO will be purchasing the 30% at fair market value. In addition, ENAMCO will then be contributing one-third of all development cost going forward. Sunridge will also then have the government as a partner as it applies for a mining license (to the very same government) following the completion of the Bankable Feasibility Study.
2./ Completion of the Bankable Feasibility Study (BFS) on the Asmara Project
Today Sunridge reiterated that they will complete the BFS in Q2 2013 on schedule. The mining plan will be an improvement over the mining plan outlined in May 2012 in the Prefeasibility Study which had a $555 million (10% discount) NPV. The new mining plan will include a plan to begin mining with the high grade copper and gold direct shipping ore (DSO) from Debarwa and heap leach the gold cap material which will generate significant cash flow a year ahead of the PFS plan. That’s right, CASH FLOW!!!
Once full production is reached, 4 million tonnes should be mined and processed per year which can produce 70 million pounds of copper, 140 million pounds of zinc, 31,000 ounces of gold, and 997,000 ounces of silver per year over the first 8 years of the mine life. This will be during a period that many analysts are predicting strong prices for of zinc and copper.
3./ Application of a Mining License
Upon completion of the BFS, Sunridge is expected to apply for a mining license for the Asmara Project.
This stage can essentially gift wrap the project and/or company and put it in a position where we may see M&A activity and there is increasing examples of buy outs in the region. Last year Barrick acquired the Jabil Sayid copper-gold deposit in Saudi Arabia deposit for approximately $1.3 billion which is similar to the Emba Derho Deposit in terms of size and economics. Discovery Metals and Hana Mining are recently the object of a takeover bids for their copper and silver deposits in Botswana.
It was at this stage 4 years ago (Point A) that Nevsun’s market cap began a steady rise from close to where Sunridge is today to where Nevsun is now.
4./ Additional Exploration Discoveries
Sunridge is planning to a drill program to expand the Adi Rassi copper-gold deposit. This is the company’s 5th deposit on the project and the first resource estimate completed last fall show an inferred resource of 15.77 million tonnes with an average grade of 0.54% copper and 0.33 g/t gold.
They also plan to drill a gold oxide target at Kodadu VMS Target to better define the oxide gold cap. Their goal is to quickly define a resource that could potentially be mined as feed to a gold plant at Emba Derho.
I’m quite optimistic Sunridge is reaching the stage where Nevsun was in 2009 when they received a mining license and it became clear that a mine was going to be built. With significant catalysts ahead for Sunridge; completing negotiations with ENMCO, completing the Bankable Feasibility Study with a strong mining plan and robust economics, and applying for a mining license (with the government as a partner) – 2013 can be the turning point for Sunridge.
If these projects were in Canada, I truly believe the share price would be multiples higher than where it is now. Political risk is high but in my highly bias view, is very much overblown but a factor one must still take into account.
The time has come to suggest to all readers who consider themselves speculators to quickly decide is becoming a shareholder of Sunridge something to do today? I’ve been adding to a position that now is well over 2 million shares and am looking to buy more after I post this commentary on my blog.
Share price has had just a few cents trading range for several months now and appears ready to advance with the developments noted above.