Research Capital says buy
After holding up the release of its first "batch" of drill results in order to include
hole 90, Argentina Gold released assay results for five more reverse circulation
(RC) drill holes this morning. Not surprisingly, hole 90's splashy gold grade over
significant width has reinvigorated the market's enthusiasm for this stock. If one
takes the uncut gold assays provided at face value, you could arrive at a current
implied value of approximately $2.20 for ARP shares. However, we still
recommend exercising extreme caution as none of the reverse circulation drill
results on the property, let alone those for this high-grade material, have been
confirmed by diamond core drilling
RESULTS
The results for hole 90 should be read as 10.25 g/t (0.30 ounce per ton) gold over
147 metres. The longer intercept of 6.15 g/t (0.18 ounce per ton) gold over 255
metres has much higher grade unrealistically blended over subore grade material.
Furthermore,
a)
the 10.25 g/t material should ultimately be cut back as high-grade gold is
erratic and unpredictable; and,
b)
grades for this high-grade coarse gold in a reverse circulation hole will not be
accepted at face value until diamond core drilling has reproduced and
confirmed them.
The fact that holes 86 and 88 returned low-grade mineralization supports our
previous observation that none of the holes drilled within the resistivity anomaly
have returned economically significant mineralization. Instead, all significant
mineralization has been returned from holes that test the edge of the resistivity
anomaly.
The fact that hole 87 returned only a narrow, low-grade intercept is very
disappointing. This hole and hole 81 limit the Amable zone's strike extent to a
maximum of 800 metres.
Hole 89 returned a potentially economic intercept of 1.88 g/t (0.05 ounce per ton)
gold and 53.5 g/t (1.56 ounces per ton) silver over 81.0 metres. While this is
encouraging in that it extends the mineralization in hole 84 approximately 75
metres to the east, it implies that mineralization in the zone is erratic as hole 88,
which cut the space only 40 metres to the south and, did not intersect any
mineralization of significance.
DISCUSSION
Being in close proximity to hole 80, hole 90 is likely testing the same "sweet spot"
suggested by the much higher than property average grades in hole 80. Given this
fact, we emphasize that one small area of higher grade does not make an
economic deposit in a remote area like the Andes. While we believe in the longer
term, bigger picture potential on the Veladero property, we feel that once again
the market is not seeing the forest for the trees (holes 80 and 90).
VALUATION
In our last Morning Comment of Nov. 16 we said that we believe that Argentina
Gold should be worth approximately $1.60 If one were to give full credit for the
uncut 10.25 g/t gold interval in hole 90, and excluding the contribution of silver,
we could see a new current valuation in the $2.20 range. However, we remain
very cautious because of the total lack of diamond drilling on this property.
CONCLUSION AND INVESTMENT OPINION
With our revised valuation that suggests that Argentina Gold could be worth
approximately $2 20, we are sticking with our accumulate recommendation and a
52-week target price of $3.00. This target price will not be modified until diamond
drilling has confirmed gold grades, geological interpretation or that unidirectional
drilling is okay. |
