Little reading on ogr
The following is very applicable to Oro Gold (TSX: V.OGR, Stock Forum), which we briefly introduced to Stockhouse readers on February 22nd at 44 cents.
March 11th Underworld Resources (TSX: V.UW, Stock Forum) became the target of a takeover by Kinross, which valued the company at $2.62/share. We have not followed this company in the past, but it’s important because we need to learn from it.
Underworld's resource estimate (for its property in Canada's Yukon) defined Indicated Resources of 1,005,000 ounces at 3.2 g/t Au with an additional 407,000 ounces of Inferred Resources at 2.5 g/t. Its Golden Saddle Deposit has a footprint of 580 m along strike and up to 560 m down dip. The two deposits are exposed at surface, open at depth and along strike, and may be amendable to open pit mining.
The Kinross transaction values the fully-diluted share capital of Underworld at approximately $139 million.
Just short of $100/oz, this is one of the higher numbers (per ounce of gold) we have seen for an early stage exploration company (in the range of 1 to 2 million ounces).
I typically try to use a minimum benchmark of 2.0 to 2.5 g/t gold for determining if open pit gold deposits are economic. In this case, Kinross saw value in the 2.5 to 3.2 range. This validates the previous grades I have used but the value per ounce (once a company approaches 1 million ounces) is much higher than the $25 to $35 per troy ounce we have used in past years.
The stability of Canada carries value, but operating costs are also higher than other regions of the world. So there is an obvious trade off.
Relevance to OGR
We need to pay close attention now to companies like Oro Gold.
Oro Gold - 64 million shares x 55 cents per share = market cap of $35 million but $8 million is in cash. This values its potential gold deposits at $27 million
OGR has high economic grades and by Q3/10 we will see a 43-101 report to release estimated reserves. Three very promising gold regions are contained within 2500 square kilometres.
Because Kinross saw value at $100/oz., it should be safe to use $60/oz for any deposits near 1 million ounces - where a company is still in the early exploration stage.
Assuming OGR hits 1 million ounces this year, we can assign a potential value of $60 million or approx. $1/share. This number could be significantly higher if a mid or large tier producer takes interest and/or the drill results continue to hit long intersections of high grade gold. This would indicate the potential could move well in excess of 1 million ounces.
If it hits 1 million ounces and its worth $100/oz, the stock is worth $1.56. However, we will target $60 per ounce of gold to establish a realistic (initial) target.
The company has an aggressive drill program running into the summer so we will be watching very closely. |
