To anyone interested: I thought I would post a summary of my knowledge and speculations about EGD and particularly for their Longyear property. Please post any responses and provide any corrections or additions that you think would be useful for the thread.
In the interest of full disclosure <g>, I have been a shareholder of EGD for about a year. During that time I have had a number of conversations with Keith Schaefer, their IR rep, and have gotten to know him pretty well. My remarks below are (I believe) consistent with what I have gleaned from their news releases and from talking with Keith. I encourage anyone wanting to know more about EGD's activities to call Keith. My experience with him has been decidedly positive.
We're all most interested in the potential of the Longyear property but keep in mind that work is progressing on the Rey Midas property and that EGD has somewhere around 40 permitted or applied-for properties. All those together would seem to me to at least justify the current market cap of US$6-7M. However, what happens at Longyear will be the principal driver of EGD's stock price.
Let me summarize what I know about Longyear. It adjoins one of the biggest gold mines in the world, the Pueblo Viejo mine. PV originally had 6M ozs of gold equivalent in oxide cap and at least 20M ozs in sulphides below the cap. The ore is in two separate deposits, the Moore and the Montenegro.
EGD's people believe that Longyear is on strike from the PV geological structures and that the geological processes that formed Longyear's structures are much the same as the ones that formed PV's structures. However, EGD remains uncertain whether their deposit(s) are SEDEX (black smoker) or Volcanogenic Massive Sulphides (VMS) in origin, and I'm not sure anyone has ever figured out exactly what type the PV deposits are. In point of fact, that probably doesn't matter when considering the potential of the property, since both options appear to have very similar and substantial potential.
EGD's recent surface sampling work is mainly from soils and dumps, with some samples of the saprolite itself. It is evident that there is a surface cap of oxide material, with weathering likely extending down from surface to 30-60 meters depth. Their sampling came up with an average grade of 1.13 gms/ton, but there is indication that the grade increases with depth. This is consistent with the theory that the cap has been depleted of some of its minerals. This may mean that there could be a supergene enrichment blanket between the oxides and the sulphides, which could help the economics of the mine. Even at 1.13 gms/ton and $300 gold, the deposit appears economic, because it is oxides (easy to process) and because the amount of material that must be stripped is nil. Furthermore, IP readings have shown strong targets underlying the oxide cap, which appears consistent with the theory that the oxide cap is underlain by significant sulphide targets.
Although EGD does not have details of surface sampling results for the PV mine (from years ago), Keith tells me that they do have some anecdotal indications that the 1.13 gms/ton soil grade they have found on Longyear so far is actually better than the soil grade for the Moore orebody on the PV property, which sounds quite promising to me.
EGD has found a Main anomaly and two smaller anomalies in their sampling program. All these anomalies remain open in some directions. As a result they have extended their soil sampling program by several weeks to give them more time to find the edges of the anomalies and to determine where the best drill targets are. I don't know when drilling will actually start, but I do know that they will be drilling a number of 100-meter holes. This means that they will be able to determine the depth of the oxide cap, whether there is a supergene enrichment layer, and what the composition of the underlying (possible sulphide) rock actually is. Good news from a number of drillholes should move the stock strongly if possibility proves out in assay results.
What are the possibilities given the information we have so far? Let's run some numbers on the Main anomaly only. We must keep in mind that anomalies usually spread out beyond the border of the underlying deposits. However, I'll assume here that the two new anomalies and the extension of the Main anomaly to the NW, N and NE will help correct my numbers. In addition, I will use the 1.13 gm/ton number as the basic grade, but some samples indicate the grade improves significantly with depth. I'll run a second set of numbers at 2.25 gm/ton to indicate the second possible outcome.
The tonnage of the main anomaly could be 550m x 800m x 30m deep x 2.6 tons/cubic meter density = 34m tons.
34M tons x 1.13 gm/ton = 38.8M gms 38.8M gms / 31.1 gms/oz = 1.25Mozs gold.
If we reduce the width of the Main anomaly by about two-thirds, to 200m, then the amount of ounces drops to 450,000 ozs, but then you have to account for the likelihood of the Main zone extension and the two other anomalies. Let's compromise and say that we have pretty clear evidence that EGD has at least 1M ounces of gold in the anomalies they currently know about. Granted, drilling must prove this out before we can bank big winnings, but the potential is clearly there.
Further, if we change the grade from 1.13 gm/ton to 2.25, we get just about 2M ozs of gold. And all of this is only in the areas they have sampled. Most of Longyear remains unsampled, as far as I can tell. Keep in mind that these numbers are only for a 30-meter thick oxide cap. The numbers don't include any estimates for any supergene blanket or for any sulphide ore that may lie below the oxide and supergene layers.
To give us some idea of what this means for EGD's stock price, we need to see how the estimated ounces of gold affect the asset valuation of the company. If I remember correctly, EGD has about 18M shares when fully diluted. At today's price of C$.53 and a currency exchange ratio of 1.46, EGD's market cap (fully diluted) is C$.53 / 1.46 times 18M = US$6.5M. 1M ozs of gold at this stage of exploration might legitimately be valued at US$10/oz and EGD owns half of Longyear. That means that Longyear alone would give EGD a market cap of US$5M. Including a reasonable valuation for their other properties should easily support a market cap of US$10M, which is 50% higher than today's price.
By September we should have much better information about the Longyear deposit(s). At that point it is reasonable, I think, to assume at least 2M ounces have been fairly accurately indicated and that the deposit will look economic. At that point it would be reasonable to put a figure of $20 on each oz while retaining a $5M valuation for their other properties. That would give a market cap of US$25M and a fully diluted stock price of C$1.83. If the underlying possible sulphide target turns out to have economic gold (and possibly copper) amounts, the price of the stock should be even higher.
Ultimately, at the point when a feasibility study has been completed on the oxide cap, we might reasonably expect 3M ozs of gold and a price per ounce of gold in the ground of as much as $100. With EGD retaining its 50% share of the property, it will have to finance half of the investment needed for a heapleach mine, say adding 7M shares for a total of 25M shares fully diluted (which I think would be high). That gives a stock price of C$8.75 per share.
If Longyear turns out to be just like Pueblo Viejo in its total gold amounts, we would see, say, 20M ounces at, say, $75 per ounce in the ground (to adjust grossly for the more difficult sulphides). Let's also assume that EGD ends up with 30M shares fully diluted in that scenario. That gives a target stock price of C$36.50. That sounds good to me!
Cheers,
Steve |
