A.G.B. Hayes, CFA
CREDIFINANCE SECURITIES LIMITED RESEARCH
February 5, 1997
TONY HAYES REPORT
Mining Analyst
Credifinance Securities
Recommendation: BUY
Recent Price: $3.90
COMPANY HIGHLIGHTS
Focus is on 3 gold concessions in Niger, West Africa with 2 discoveries to-date.
Deposits: Koma Bangou and Samira.
Concessions: Koma Bangou, Tiawa and Kossa.
Placer Dome has acquired an equity interest in EET plus an option on the Samira discovery.
Highly prospective Tiawa borders concessions owned by Barrick, Iamgold/Ashanti and
Pioneer.
Kossa also highly prospective with quartz vein samples grading up to 485 g (16 oz)
per tonne. Main shareholders Placer Dome 19% and NovaGold 9%
Placer Dome has an option on 51% of an 81 sq km section of Etruscan's Tiawa in Niger for what
could amount to US$64 million, or $2.16 per Etruscan share fully diluted On the basis of the
known gold resource of 1.81 million oz Placer would end up with only 830,000 ozs at a cost of
US$77 per oz if no further gold is found. While it is extremely unlikely that Placer would
exercise its option if no more gold is found on the joint venture zone, it is also highly improbable
that Placer would have struck a deal with Etruscan unless the potential was considered to be
very much greater than what is known today. Placer is serious about its joint venture and has
already started a 15,000 metre drilling program along the entire Samira / Boulon Djounga gold
belt.
Should Placer exercise its option it would be worth $2.16 per Etruscan share fully diluted. With
cash on hand, the exercise of all outstanding common share options, warrants and convertible
debentures would result in Etruscan having an additional $1.65 per share for a total of $3.81
fully diluted. At $3.90 per share this would leave a residual of only $0.09 per share being
ascribed collectively to Etruscan's portion of the joint venture with Placer, the remainder of the
Tiawa Concession, an option on 50% of the Kossa Concession and 67% of the Koma Bangou
deposit. This indicates that the value of Etruscan is un-recognised and we recommend most
strongly the purchase of the Company's shares. At the current price it makes much more
sense for Placer to buy the balance of Etruscan which it does not own, rather than to
exercise its option and pay US$64 million for just a 51% interest in a small part of the
Tiawa Concession.
Recent Developments
December 1996:
Placer Dome acquired 4,175,275 Etruscan shares from Echo Bay Mines Ltd. for equivalent of
$4.00.
Placer also acquires option on 51% of 81 sq km of Tiawa Concession encompassing Samira /
Boulon Djounga discovery.
January 1997:
Tiawa resource increased by drilling to 1,810,000 ozs gold, Koma Bangou still 315,000 ozs
Tiawa-Samira geological resource now five times what it was in March 1996.
Tiawa-Boulon Djounga digger field and other targets have even greater potential.
Etruscan to acquire, subject shareholder approval, 44% minority interest in African GeoMin.
This to cost US$19 million, 5 times unit price of original 56%, matches 5 fold increase of
resource.
Etruscan increases its gold resource by 63% but only increases fully diluted shares by 20%.
Etruscan's acquisition thus anti-dilutive and creates significant additional share value.
Company announces option to acquire 50% interest in 1,875 sq. km. Kossa Permit in Liptako
Gold District of Niger. Preliminary results show presence of 2 major zones, one of which is 12 km
long artisan digger field. Quartz vein samples in the Birimian have assayed up to 16 oz per tonne
indicating Kossa is highly prospective.
The Company
Etruscan is a mineral exploration company with $4 million in hand which is 19% owned by Placer
Dome and 9% owned by NovaGold. Exploration to date has been in Canada, Venezuela, the
United States and Niger, West Africa. Of greatest interest and significance is the work underway
in Niger. Particularly on the Tiawa Concession which is owned beneficially through African
GeoMin Mining Development Corporation in which company Etruscan holds a 56% interest.
Subject to shareholders' approval Etruscan has agreed to purchase the other 44% of African
GeoMin for 6.5 million shares of Etruscan. A newly acquired option on the Kossa Concession in
Niger is also of great interest with quartz vein samples grading up to 485 g (16 oz) of gold per
tonne.
Review of Exploration Activities in Niger
Etruscan is exploring for gold in Niger. The company selected West Africa because of its
similarities to the north eastern countries of South America. The two regions were once part of the
same land mass and have the same gold-bearing geology. West Africa has an extensive history of
gold mining and has large tracts of unexplored land.
Exploration in Niger is concentrated within the Birimian aged greenstone terrain of the West
African Craton in the south western part of the country bordering Burkino Faso. This Birimian
greenstone hosts the Ashanti Mine in Ghana which has produced 21 million ozs of gold over the
past 100 years and has 21 million ozs in reserves. The rocks are equivalent to the greenstone belt
of the Guyana Shield in north eastern South America end have undergone similar tropical
weathering. Birimian greenstones have thus the potential to host multi-million oz gold deposits such
as Ashanti and the Las Christinas deposit in Venezuela.
Tiawa Concession - Ownership Overview.
The Tiawa Concession covers 1240 square kilometres and borders concessions owned by
Barrick Gold to the East, Iamgold / Ashanti Goldfields to the South East and Pioneer Goldfields to
the South. There are several large and promising targets on Tiawa besides the Samira discovery.
Subject to shareholders' approval on February 19, 1997, Etruscan intends to issue 6.5 million
common shares to acquire the 44% of African GeoMin which does not own. African GeoMin
owns beneficially the Tiawa concession in Niger. Should there be a decision to mine the property
then African GeoMin's position will be automatically be reduced to 90% with the remaining 10%
going to the Government.
Before the acquisition of the minority interests in African GeoMin, Etruscan had 33 million shares
fully diluted and a net interest of 1,187,000 ozs of gold. By issuing 6.5 million more shares to
acquire the 44% minority interest in African GeoMin, Etruscan will increase the fully diluted
number of shares outstanding to 39.5 million.
Placer Dome Options 81 sq km section of Tiawa Concession
In a separate transaction Etruscan has optioned to Placer
Dome a 51% interest in 81 square Km of the Tiawa
Concession on which are located the Samira deposit and the
Boulong Djounga digger fields. Provided the acquisition of the
outstanding 44% of African GeoMin is approved by Etruscan
shareholders then Placer Dome will
pay to Etruscan the cash sum of US$2 million
be committed to spending a minimum of US$4 million on
the joint venture zone over 18 months
decide whether or not to exercise its option and pay
Etruscan US$50 million to retain its 51% interest in the
joint venture zone.
In addition Etruscan has an option to put common shares to
Placer Dome in the aggregate sum of US$8 million at any time
during the option period. Furthermore, Placer Dome has also
acquired over 4 million shares of Etruscan from Echo Bay at a
deemed price of $4.00 per share.
The foregoing suggests strongly that Placer Dome is impressed with Etruscan and its Niger
properties.
Tiawa - Samira
Through African GeoMin, Etruscan started drilling the Samira target on the Tiawa concession
during February 1996. Samira is a sediment-hosted, strata-bound, disseminated gold deposit of
Birimian age. At surface the deposit is characterised by the outcropping of the very distinct
red-mauve coloured rock of the footwall. So far the company has announced the discovery of a
fire-assayed, diamond-drill indicated resource of 1,810,000 ozs of gold from surface down-dip to
300 metres and with a true width of 50 metres grading 2.02 g per tonne.
This in itself is a remarkable achievement in such a short space of time. It is, however, only part of
the story as the calculation was done on only a small portion of a 25 km geophysical anomaly
where sufficient drilling has been completed. Geochemical and geophysical work along with
reconnaissance drill, done both along strike and down dip, suggests strongly that the resource
calculation could be increased significantly.
Prior to Etruscan's acquisition of the first 56% of African GeoMin, the geological resource at the
the deposit was estimated to be 1.6 million tonnes containing 370,000 ozs of gold at an average
grade of 2.59 g per tonne to a vertical depth of 90 metres over a strike length of 200 metres. This
original estimate was the basis for a valuation study on the Tiawa Concession prepared for
Etruscan by David R. Duncan, P.Geo an independent Registered Professional Geoscientist. This
was used by Etruscan in the determination of a fair purchase price of US$5 million cash for
the first 56% of African GeoMin which was acquired in the April of 1996. Since then the
resource has increased five fold and the 44% minority interest in African GeoMin is
being acquired for 6.5 million shares of Etruscan at approximately five times the unit
price of the initial 56%.
Tiawa - Boulon Djounga
Also on the Tiawa concession, and along the same geological horizon, is the large artisanal gold
digger fields at Boulon Djounga some 7 km. northwest of Samira. Geophysical and geochemical
work along with trenching suggest that this structure is similar in nature to Samira but much larger.
The strike length of favourable geology is 8 km. and soil geochemistry shows the presence of up
to 20 g of gold per tonne. Some 2,000 artisan miners have, at any one time, worked a 4 km.
portion of Boulon Djounga and left behind pits up to 40 metres deep and as much as 300 metres
across strike.
Tailing left by the diggers, grade between 0.5 g per tonne and 18 g per tonne with grab samples
up to 60 g per tonne. Like Samira, the anomaly also seems to be a sediment hosted, strata-bound,
disseminated gold structure of Birimian age which means that it could also have considerable
continuity of strike length, width, dip and grade.
Niger - Kossa
Etruscan has an option to acquire a 50% interest in the 1,875 sq km Kossa Concession which is
220 km northwest of Niger's capital, Niamey. Etruscan can earn its interest in Kossa by spending
US$3.2 million in exploration and development over the next 3 years.
Over 80% of the Kossa deposit is underlain by rocks of the highly prospective Birimian Group
and hosts a major gold digging field which extends 12 km. over the western part of the property.
Gold mineralization is reported from alluvial cover, laterite cover, quartz veins and saprolite. Vein
samples have assayed up to 485 g ( 16 oz) of gold per tonne while samples of saprolite from the
gold digging sites assayed between 0.5 g and 5 g per tonne.
Airborne survey work has identified two major zones on Kossa. One is a 16 km long zone of
structural deformation associated with the known gold digging fields. The second is 6 km wide and
extends over 30 km across the entire concession.
Niger - Koma Bangou
In 1994 Etruscan set up a joint venture (67% Etruscan, 33% ONAREM) to develop the Koma
Bangou gold property in Niger with L'Office National des Resources Minieres (ONAREM) the
state owned company responsible for mineral development. Koma Bangou, which was discovered
in 1985, is the most advanced gold project in Niger. The resource at Koma Bangou is estimated
at 315,000 ozs of gold. A preliminary feasibility study has been completed but a production
decision has been delayed pending the outcome of further work based on a re-interpretation of the
geology with the benefit of knowledge acquired at Samira.
Etruscan Enterprises Limited
Common Shares Outstanding
Millions
Shares Outstanding
21.5
Warrants Options & Convertible
11.5
Fully Diluted Pre African GeoMin Purchase
33.0
African GeoMin Purchase
6.5
Total Fully Diluted
39.5
Comparison with other Gold Companies
Compared to a random selection of gold companies, some of which have properties in West
Africa, Etruscan does not seem to be even discounting the resource announced to date.
Furthermore, it appears that no value is ascribed to the following:
the potential of substantially higher reserves at Samira
the exciting possibilities at Boulon Djounga
the other very promising targets on the remainder of Tiawa outside of the 81 sq km joint
venture zone with Placer Dome
the potential of the newly obtained option on 50% of highly prospective Kossa Concession.
A simple yardstick which even companies on the acquisition trail use, is the net present value of
gold in the ground. As a rule of thumb $67 (US$50) per oz. seems to be widely accepted as a fair
price for companies to pay to acquire gold in the ground in West Africa of even lower grade than
that of Etruscan.
Etruscan cheap when valued on basis of ozs gold in the ground.
The following Table shows how much the market is willing to pay for different companies per oz.
of gold in the ground. Assuming the successful acquisition of the remainder of African GeoMin,
Etruscan's fully diluted, cash adjusted, market capitalization per oz. is $18 (US$14) based on a
net 44% interest (Government of Niger 10%, Placer Dome 46%) in 1,810,000 ozs of gold on
Tiawa and a net 67% interest in 315,000 ozs of gold at the Koma Bangou property, also in Niger
for a total net interest of 1 million ozs. Compare this to the US$77 per oz which is the current
price which Placer is prepared to stake on the joint venture with Etruscan. Either the Placer
valuation is too high or Placer expects to find much more gold. If the latter is the case, then the
Etruscan valuation is much too low.
Any increase in the Samira resource would push the market capitalization per oz even even further
and if Boulon Djounga proves successful it would drop yet again. With Samira at 3 million oz of
gold the market capitalization would drop to US$9 per oz while at 5 million ozs it would be only
US$6 per oz. Unless, of course, the share price adjusts upwards, as might be expected, in concert
with the increased resource calculation. While it might be argued that the shares will only reflect
the value of Etruscan's gold once its existence is proven, then the same should hold true for all
other gold companies.
We believe that there is ample room for a significant upward adjustment in the share price of
Etruscan. With the sort of potential from just Samira and Boulon Djounga, which could be topped
with further discoveries on Tiawa and Kossa, we believe that there is every reason to expect
that if portfolio investors will not buy Etruscan then the value of the Company will not go
unnoticed by Placer Dome given that it is already a sizable shareholder and is the
operator of the Samira joint venture. We recommend the inclusion of the shares of
Etruscan in all gold exploration portfolios. |
