By Peter Grandich,
Peter Grandich, Financial Adviser and Market Analyst is the founder of Grandich.com and Grandich Publications, LLC. He is also editor of The Grandich Letter which was first published in 1984. His commentary on the mining and metals markets have been read by tens of thousands of subscribers and relied upon by major financial media around the world.
Read below Peter Grandich’s exclusive interview with Sunridge Gold Corp. President and CEO Michael Hopley.
(Q) Sunridge announced recently the closing of a $10 million private placement. What do you intend to do with the proceeds?
(A) The financing will enable Sunridge to complete the Bankable Feasibility Study (BFS) on the Asmara project in spring of 2013 and apply for the mining license. This will be a major milestone for the Company and the project as it will open a variety of options for the next step towards production.
The Bankable Feasibility Study on the Asmara Project is examining mining all 4 of the deposits currently defined on the Project and processing at centralized plant located at the large Emba Derho Deposit. We are currently almost half way through and we will complete the Study on time in April of next year.
This is a continuation of the Prefeasibility Study (PFS) completed on the Asmara project last May which showed very strong economics with a discounted net present values (NPV) of $555 million. The mine will produce over 365,000 tonnes of copper, 812,000 tonnes of zinc and significant amounts of gold and silver over a 15 year mine life. We expect to improve upon the PFS results as we have been examining different mining scenarios to reduce capital costs and improve economics.
(Q) How is the Feasibility Work Progressing?
(A) The BFS work is advancing very well. We issued a news release on November 1st which provided a full update on the work and outlined a number of key improvements over the mining plan in the PFS.
Most importantly the BFS will include a plan to commence mining operations by mining and direct shipping to a smelter the high grade copper material from the “DSO Zone” within the Debarwa Deposit. The zone contains approximately 120 thousand tonnes of high grade material averaging 16 % copper, 3.0 grams per tonne gold, and 77.0 grams per tonne silver. This plan will put us into production a year ahead of schedule with low capital costs since a mill will not yet be required and will give the operation a significant cash injection.
Also, the BFS mining plan includes a heap-leach gold operation which will process the material from the gold caps of the deposits concurrent to the start up of base metal operations and provide Sunridge the opportunity to generate revenue from precious metals early in the mine life. This is an improvement to the gold processing plan in the PFS which used an expensive Carbon in Pulp (CIP) facility which would have stockpiled the material from the gold caps and processed it at the end of the mine life.
(Q) Sunridge announced that ENAMCO, the Eritrean state mining corporation, has advised you that they intend to exercise their option and purchase a 30% interest in the project. How does this work and what does this mean for Sunridge?
(A) This is a great boost and validation for the project; having the government as a partner will certainly make the permitting and building of the mine easier. This 30% interest is in addition to ENAMCO’s existing right to receive a 10% free carried interest that will be carried to production by the participating partners. The terms of the acquisition of the participating interest by ENAMCO are still being negotiated and details will be determined over the next several months.
In addition to the purchase price for the 30% interest, ENAMCO will be contributing one third of all development and mine construction costs as they are incurred. This reduces Sunridge’s capital cost by one third, as well as any ongoing expenditures on the project. The Asmara Project will be the largest mine in Eritrea.
(Q) What happens after the Bankable Feasibility Study is complete?
(A) After the BFS is complete, we will completing and submitting the environmental impact assessment to the government in order to apply for a mining license. Having the government as a partner should be a great advantage at this stage. We have put a lot of effort in making sure the environmental and social aspects of the project are done right and we are confident that the permitting process should go smoothly.
(Q) How do you see Asmara Project moving into production?
(A) We are approaching the project as if Sunridge is going it alone and doing the same as Nevsun did at Bisha by financing and building the mine ourselves. We are looking at different ways to finance, which include debt, equity, ENAMCO participation. The BFS is looking at various ways to reduce upfront capital costs and have earlier cash-flow. We are also reviewing options to finance through off-take, gold or silver royalty streaming, or bringing in a joint-venture partner.
That being said, we are also open to selling the project for the right price and we feel we will get a much higher price for the project by completing the BFS and acquiring the mining license. We want to get to the the mine building stage without a partner and no strings attached. This keeps all options open once it comes time to finance and build the mine.
There have been some recent examples of base and precious metal companies being bought out in the region – many of these value the projects at more or less $1 billion and some of these compare favorably with the Asmara Project in terms of contained metals .For instance, Discovery Metals and Hana Mining are recently the object of a takeover bids for their copper and silver deposits in Botswana. 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.
(Q) Any comments on what appears to be a single large seller of Sunridge recently in the market?
(A) Yes, we understand one of our larger shareholders made the decision to focus on producers and have been selling their position in Sunridge and other small non-producing companies over the last few months. Fortunately we have had buyers that see this as an opportunity and know that this seller will eventually run out of shares to sell – based on the numbers we have seen; we expect this to happen very soon.
Thank you Michael.