From Lawrence Roulston's Resource Opportunities........................................
Initiating Coverage
GoldQuest Mining Corp.
(GQC-TSXV)
GoldQuest has several gold and base metal exploration projects in the Dominican Republic, an under-explored and highly prospective Caribbean nation. An important new element in the story was added earlier this year with the acquisition of a project in Spain with a substantial historic resource. The company has received little investor attention thus far. Recent news and a couple of very important pending developments will serve to focus investor attention on this undervalued company.
GoldQuest has a highly experienced and very capable board of directors. Anna Stylianides stepped in recently as acting president on the departure of the former CEO. She has an impressive background in corporate finance and has been involved in several important successes. The other four directors bring extensive mining industry experience. The company is now on the hunt for a president who can direct the exploration projects. In particular, the project in Spain, with years of work already completed, could be advanced quickly to production. The Dominican projects bring considerable exploration potential.
The Dominican Republic is not generally seen as a mining hot-spot. Investors forget that the island nation hosts Pueblo Viejo, which has 22 million ounces of gold and 117 million ounces of silver. Barrick and Kinross are well advanced at construction of a mining operation that will produce in excess of a million ounces of gold a year from that deposit.
GoldQuest began working in the Dominican Republic several years ago. Goldfields, a major gold producer, funded a regional grassroots exploration program that turned up several very interesting prospects. The major has now exchanged its joint venture interest for 8.6 million shares of GoldQuest and a 1.25% royalty. Gold Fields is now the largest shareholder.
GoldQuest has accomplished a great deal on its Dominican projects, including outlining a resource on the Las Animas project. That area was mined for silver in the 16th and 17th centuries and a Spanish company explored for base metals in the 1970s and 1980s. GoldQuest conducted enough drilling to outline 43-101 compliant resource on a portion of the known mineralized area.
A near-vertical zone at Las Animas averaging 5.7 meters thick was drilled down to 370 meters. The upper part of the zone is oxidized and hosts an indicated resource grading 6 grams per tonne gold and 119 g/t silver. The lower part of the zone hosts sulphide ore grading 2.6 g/t gold and 52 g/t silver, with 3% copper and 3.7% zinc. An inferred resource in the sulphide zone grades 1.66 g/t gold, 31 g/t silver, 1% copper and 1.3% zinc.
In total, the resource estimate on Las Animas outlines 129,000 ounces of gold, 2.5 million ounces of silver, 106 million pounds of copper and 130 million pounds of zinc. There is further potential at depth and in other known mineralized zones on the property. Further work at Las Animas was deferred as the company turned its focus to its gold-dominant projects in the Dominican Republic.
In July, the company announced results from the third phase of drilling on its Las Tres Palmas project. Results include 26 meters grading 11.4 grams per tonne gold in hole LTP-39 and 53 meters grading 3.0 g/t in hole LTP-41. Those holes expand the gold zone outlined by previous drilling. An independent resource estimate is presently being compiled.
The gold occurs as a flat-lying stratiform zone at shallow depth. To give the project some scale, the area encompassed by the drilling to date has the scope to host a gold deposit tending toward a million ounces. The first will likely be short of that mark, as not all of the mineralized area will be included based on the drilling density at this time. That zone remains open and there are other target areas on the property that remain to be tested.
An initial drilling program at the Cerro Dorado property encountered 23 meters of 2.9 g/t gold and 20 meters of 2.7 g/t. Further drilling is planned on that project. The company is also investigating several other gold and gold-copper projects in the Dominican Republic. Preliminary work has demonstrated the presence of mineralized zones with significant size potential.
The new project in Spain, which has had many years of prior work, offers more immediate upside potential for GoldQuest shareholders. The Toral project was acquired earlier this year from Lundin Mining. The property hosts a substantial historic resource of zinc-lead-silver and has considerable scope for expansion. The deal also includes a second poly-metallic project in the region as well as access to an extensive exploration database covering northwest Spain. That region has excellent potential for gold and base metal deposits.
GoldQuest now holds a 100% interest in the two projects, subject to a payment of $5 million after the start of commercial mining operations, plus a 1.5% royalty. Lundin retains at one-time back-in right to 51% by spending 2.5 times the amount spent by GoldQuest. Lundin can acquire a further 14% by funding the project through a feasibility study.
The back-in has a quick trigger. After 5,000 meters of drilling, GoldQuest will commission an independent resource estimate. If that estimate shows a resource in excess of one million pounds of contained metal, Lundin has the right to exercise the back-in. In that case, the $5 million payment and the royalty would be extinguished.
If Lundin backs in, GoldQuest would have an interest of between 35% and 49% of a larger metal deposit, with an established mining company as a joint venture partner. The price to GoldQuest for that interest would be the cost of the 5,000 meter drilling program and the resource estimate. Whatever the decision by Lundin, the project has considerable scope for upside beyond the historic resource and the amount that shows up in the preliminary resource estimate.
The Toral project was first explored in 1975. A Spanish company completed the resource estimate referred to above in 1997. A substantial drop in metal prices soon after that time saw the project remain idle until it was acquired by Lundin Mining as part of a program of consolidation of mining interests in Europe.
The previous work on the Toral project includes 42,000 meters of drilling. All of that drilling was focused on a near-vertical zone that cuts through a mountain. The mineralized zone has been projected under the valley and on the other side, but little work has yet been done to follow up. The project is close to a power line, highway and rail line. A big smelter is located just 300 km away by rail. In short, this is an ideal candidate for a fast-track to production.
GoldQuest is in the process of compiling the historic information on the Toral project. They have commissioned an independent resource estimate, which is due for completion in the coming weeks. That estimate will enable investors to put a tangible value on Toral.
The second Spanish project acquired by GoldQuest, Lago, is located just 20 minutes drive from Toral. The project was explored by a major company in the 1990s. The work included 34 drill holes, several of which encountered high grades of zinc. The company is awaiting approval from the Spanish government of an application to acquire the mineral rights before conducting further work.
Over the next few weeks, investors can expect a great deal of news from GoldQuest. Resource estimates on Toral will provide a formal basis for valuation of that advanced project. The initial resource estimate for Las Tres Palma will add further fundamental value to the company.
As those studies progress, work will continue on the Dominican projects, with the potential for further results that could add value to projects that at this time get little recognition.
The share price has recovered from the recent low, but still offers upside potential based on the impending news flow. That value should trend a great deal higher as work progresses on the various projects. There may be more shares available near the last trade price. Try to get a position under $0.20.
Price September 24, 2010: C$0.175
Shares Outstanding: 92 million
Shares Fully Diluted: 112 million
Market Cap: C$16 million
Contact: Investor Relations
(604) 632-4333
www.goldquestcorp.com |
