Hello to All. Given the recent news, I thought I would contribute some numbers here. I hope this will help us all by setting up a fairly simple quantitative framework for projecting what the March assay results might mean once we get them in hand.
It looks as if EGD's Longyear property has a target with breakeven economics at 1 gm/tonne Au and very favorable economics at any grade exceeding an average of 1.5 gms/tonne. This is because operating costs for extracting the oxides should be very low. Strip ratio will be extremely low, and the oxides look to be heap-leachable. I understand that operating costs at Pueblo Viejo for their oxides were less than US$100/oz extracted. I admit that I don't know the size of the capital investment needed to build a suitable heap-leach operation, but for our analysis here, let's assume C$60M. If we can see a 2M oz deposit here, that's about $25/oz. So fully allocated cost should be well below $200 and could be as low as, say, $150/oz, at the assumed grades.
So the next step is to see what the current data *could* be saying about the deposit. First, the tonnage under various assumptions. At minimum it appears that EGD has a higher-grade (1.5gm-3gm) area that is 300m x 700m, determined from rock sampling and trenching. We will assume widths of 200m, 300m and 400m. The at-surface rock anomaly outcrops along a 700m length, but the soil anomaly extends 1,600m. Given erosion patterns, it seems possible either that the anomaly extension is a smearing of the 700m outcropping or a true extension under uneroded surface covering. We'll assume two lengths, 700m and 1,500m. Depth of oxides appears to average from 30m to 40m, so we'll use 30m and 40m. Specific gravity from trench sampling apparently is 2.67. So, here are the tonnages for the minimum, fair (given existing data), and maximum:
Minimum Tonnage: 200m W x 700m L x 30m D x 2.67 = 11M tonnes
Fair Tonnage: 300m W x 700m L x 40m D x 2.67 = 22M tonnes
Maximum Tonnage: 400m W x 1,500m L x 40m D x 2.67 = 64M tonnes
For grade, let's assume 1.25gms/tonne, 1.5gms, 1.75gms and 2gms and convert to ounces at 31.1 gms/oz.
For the Minimum (11M tonnes):
@1.25 gms: 450,000 ozs
@1.50 gms: 541,000 ozs
@1.75 gms: 631,000 ozs
@2.00 gms: 721,000 ozs
Given this is the minimum tonnage, my assumption would be that it would be the central, higher-grade area and so it seems appropriate to assume the 2 gm grade would be most likely, with at least 700,000 ozs recoverable. Given the sampling and trenching results to date, I do strongly believe there is very likely to be *at least* 500,000 ozs of economic-grade ore in the central area. Even if 500,000 is all that is found, that would readily support a share price of about C$1.50 and give EGD a chance for higher prices with results from San Antonio or any of the other, what, 25-35? properties they have.
For the Fair alternative (22M tonnes):
@1.25 gms: 901,000 ozs
@1.50 gms: 1.08M ozs
@1.75 gms: 1.26M ozs
@2.00 gms: 1.44M ozs
I actually think that the grade for this tonnage might again be 2 gms/ton, but let's use the 1.75 gms/tonne figure of 1.26M for this alternative.
For the Maximum (64M tonnes):
@1.25 gms: 2.58M ozs
@1.50 gms: 3.09M ozs
@1.75 gms: 3.60M ozs
@2.00 gms: 4.12M ozs
For this alternative we might expect 1.75 gms, but we'll use 1.5 gms for a 3M oz recovery.
So the expected range here is somewhere between 700,000 ozs and 3M ozs. Personally, I'll guess there is a little smearing on the surface values and some extension of the deposit, with a likely grade around 1.75 gms. Assuming 300m x 1,300m x 40m x 2.67 @ 1.75 gms, that's 42M tonnes and 2.3M ozs. Assuming a ten-year mine life, fully allocated costs of $175/oz and a gold price of $290, a 33% tax rate and 37M shares fully diluted (including C$60M@C$3/sh or 20M shares for construction financing, which looks to be too many shares, but let's be conservative). That's US$.49/share or C$.75 in income in each of the ten years of production (average, obviously). Times a P/E of 7 is a share price of C$5.00.
Taking it a different way, let's say one of the several majors watching EGD buys EGD out during the feasibility stage. I don't have a good handle on the $/oz that is currently being paid for such deposits at that point, but it may be somewhere around US$40-50. Assuming US$40/oz for 2.3M ozs, that's US$94M or C$140M for EGD. Since construction financing would not be needed, the company would have, say, 20M shares fully diluted at that point. That means C$7.00 per share. I suspect that C$7.00 would be a minimum or starting price in negotiations, *IF* EGD receives good enough results in the future to attract one or more takeover bids from the several majors that are undoubtedly watching their situation.
Remember, that's just for 2.3M of oxide ounces at Longyear and gives no credit at all to a higher gold price, any sulphide ounces, or for any of their other properties, of which San Antonio looks very promising.
Now for the blue-sky. If the sulphides below the oxide layer are in the same ratio as they were for Pueblo Viejo, then we could expect 3-4 times as many sulphide ounces as oxides. 3.5 x 2.3M oxide ounces would be 8.2M sulphide ounces, for a total figure of 10.5M ounces. The sulphides would require a higher gold price, of course. Assuming a moderate recovery in the gold price, they could easily add another C$10-15/share, though, and San Antonio and the other properties could add another C$5.00, say. That's a share price in the first half of 2000 of about C$25, which is a nice multiple of EGD's current share price.
Not bad at all.
Anybody who finds a math error in my calculations, please let me know. Obviously, assay results are needed to support my assumptions on grades, so we can all hope for good news in March. If you disagree with my assumptions, then I recommend and request that you contribute your own analysis and tell us what you think. Anyone got any comments?
Cheers!
Steve |
