Sunridge Gold's (CVE:SGC) CEO Michael Hopley is seeing significant interest from the Chinese for its Asmara copper-zinc and precious metals project in Eritrea, he said in a recent interview with Eric Coffin of Hard Rock Analyst (HRA) Advisories.
The junior company is one of only two additions to the HRA list in the past few months, with Coffin saying that Sunridge has "significant takeover potential".
"The resource market is strengthening. New mines are needed and money is moving to advanced stories that are “financeable”.
"Sunridge’s Asmara project has the high IRR and NPV relative to market value that makes it an attractive project for both financiers and larger mining companies looking for acquisitions," wrote Coffin in a recent newsletter to subscribers, which highlighted the interview with Sunridge's Hopley.
In a difficult financing environment, Sunridge realized that it would have to re-engineer Asmara to maximize near-term cash flows and minimize the peak capital outlays to bring the project into full production. It did just that last year, staging the project so that high grade copper ore and heap leachable gold could be accessed early and at modest costs.
The cash flow from these early operations would then be leveraged to help finance the larger, long-life mining operation. The new model yielded a net present value of US$692 million at the project, and an IRR of 34%, using a 10% discount rate.
"That places Asmara at the high end of potential returns for new mining projects. It looks very financeable and it also makes an attractive acquisition target for a large mining company," said Coffin, the editor of HRA Advisories.
"Keep in mind that Sunridge’s market value is about $50 million and the company is debt-free. This leaves plenty of room for a potential bidder to offer a good return to current shareholders and leave plenty on the table for itself. That combination is the reason HRA initiated coverage when the deal with ENAMCO was announced."
In February, ENAMCO --- the Eritrean National Mining Corporation --- finally formally agreed to acquire its maximum 30% participating interest in Asmara, in addition to its existing right to get a 10% interest that will be carried to production by the participating partners. In return, ENAMCO will pay Sunridge US$18.33 million, bearing interest, payable in stages, prior to production from the property.
The Eritrean company will also pay Sunridge one third of all project development costs back-dated to July 2012, which is estimated at about US$4 million. ENAMCO will also contribute one third of ongoing expenses on the project, including for both exploration and development.
"We are moving ahead as if we are going to do this ourselves and that’s what we will continue to do unless we get what we feel is a decent offer," said Hopley in the interview.
"But as you know we’re working in a country in Africa that the Chinese are very comfortable with; they do quite a bit of business there. With the large amount of copper, zinc and precious metals that we have defined to date on the Asmara project it’s a fairly obvious thing to say that Asian companies, but particularly Chinese companies, have shown a lot of interest.
"That is particularly true since we came to the agreement with ENAMCO. Obviously, we’d like to sell out at a huge premium. I mean that’s always the best exit strategy for a junior company, but in this market it’s hard to know whether that prize will ever come to fruition, so we have to see."
Both Sunridge and ENAMCO are now working towards completing a shareholders agreement, which is expected to take less than three months and will govern the management and funding of the project. Asmara will be held 60% by Sunridge, with the remainder to be held by ENAMCO.
The Asmara project, which has a three phase start-up plan, is pegged to produce an average annual rate of 65 million pounds of copper, 184 million pounds of zinc, 42,000 ounces of gold and 1 million ounces of silver over the first eight years. All work is focused on bringing the project to production in 2015.
The permitting process for the mining license -- which is expected to take 9 to 12 months -- was also kicked into high gear late last year, with the submission to the Ministry of Energy and Mines of the project's Social and Environmental Impact Assessment report.
Sunridge also has ongoing exploration that it plans to start in April for its earlier stage projects, such as Kodado and Adi Rassi, with intentions to upgrade the resources there and increase their size.
The junior gold company has a 52-week trading range of 12 to 31 cents, and is currently changing hands at 25 cents, giving it a market cap of $52.45 million. So far this year, the stock has climbed over 51%.
To read the interview with Hopley and Coffin in full, please click here.