By Brien Lundin,
SUNRIDGE Gold has four advanced projects organized within its Asmara project in Eritrea and, in an interesting twist, the company has combined all four into one feasibility study.
By staging production through the four projects and having mining revenue help to fund successive stages, the feasibility study has come up with outstanding economics and fairly low capital costs to go into production.
The numbers are impressive. The project’s NPV, discounted at 10%, is $692 million with an IRR of 34%. The plan for the project envisions a three-phase start up. Phase I is slated to begin in 2015 and will have an initial capex of $46 million.
The company anticipates full production by 2018. At that point, the mines that make up the Asamara project (Emba Derho, Debarwa, Adi Nefas and Gupo Gold) are estimated to annually generate 65 million pounds of copper, 184 million pounds of zinc, 42,000 ounces of gold and 1 million ounces of silver in the first eight years of full production.
Key de-risking steps for the project have just concluded, including a shareholder’s agreement with the Eritrean National Mining Corporation (ENAMCO), along with an initial payment of $2 million to Sunridge as part of an $18.33 million payment for ENAMCO’s portion of the project.
ENAMCO will also provide US$6 million to the new operating company, as their portion of the previous exploration work, plus one-third of all expenses going forward.
With these capital contributions and the feasibility study using phaseddevelopment to fund ultimate capital costs, Sunridge should have a clear path to production next year without the need for any additional equity financings.
The good news is that the current share structure is about right for a company funded to production for a major project, which is essentially where it is. Any additional needed financing would be for project expansion, and would likely comprise debt and/or offtake agreements.
The company issued the bulk of its current shares outstanding during the frothy part of the market, and was therefore able to raise a lot of money and put it into the ground. The current share structure represents a lot of value — over 400,000 meters of drilling — and a world-class, feasibility-level project essentially funded to production.
On the classic path of a project from discovery to production, Sunridge is now at the lowest valuation level, pre-development and rising to production. Thus, this is a great time to invest.
While the company is rapidly advancing toward production and has a clear path ahead, it is very likely that it will be bought out now that most of the risk has been eliminated. Chinese groups are prime candidates, as the nation is aggressively investing in Africa. Another potential buyer would be Nevsun, which has over $400 million in cash and is well invested in Eritrea.
Eritrea is, surprisingly to many Western investors, a great place to invest, with a superb track record (see Nevsun and its Bisha project) and great respect for the letter of the law.
All in all, I see Sunridge as a very likely double from current levels as it is either bought out or goes into production over the next 18 months or so. With much greater potential upside, it’s an outstanding mix of lowered risk and near-term rewards and a buy.
Sunridge Gold Corp.:
Recent Share Price:………………………………………C$0.20
Shares Outstanding:…………………………..209.80 million
Market Cap:……………………………………..C$42.0 million
Shares Outstanding
Fully Diluted:……………………………………..314.3 million
Market Cap
Fully Diluted: …………………………………..C$62.9 million
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