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Sunridge Gold trading at a steep discount, says Lawrence Roulston of Resource Opportunities

Sunridge Gold (CVE:SGC) (OTCQX:SGCNF) is quickly advancing its Asmara gold-base metal project in Eritrea, with some important milestones in the offing that could potentially boost its share price, reckons Lawrence Roulston, editor of Resource Opportunities, in an article from the magazine's January issue on the junior gold company.
Sunridge Gold trading at a steep discount, says Lawrence Roulston of Resource Opportunities

Sunridge Gold (CVE:SGC) (OTCQX:SGCNF) is quickly advancing its Asmara gold-base metal project in Eritrea, with some important milestones in the offing that could potentially boost its share price, reckons Lawrence Roulston, editor of Resource Opportunities, in an article from the magazine's January issue on the junior gold company. 

"Sunridge's Asmara gold-base metal project is continuing to advance toward development, with some important mile-stones expected shortly which could positively impact the share price," he wrote in his editorial piece on Sunridge. 

"Asmara, as one of the most attractive large, advanced-stage mining projects available anywhere, is attracting consider-able attention from the mining industry. 

"That interest has not yet been reflected in the share price, which continues to languish, along with the rest of the companies in this industry. A feasibility study completed early last year showed very favorable economics: an after-tax net present value (8%) of $443 million with an internal rate of return (IRR) of 27%."

The Resource Opportunities editor also highlighted the project's "modest" capital requirement of $46 million for the first phase of development. While the first phase is developed, and begins producing, the  main part of the project will also be in development, involving the full scale open pit mining operation and construction of a flotation mill, with a total capex of $357 million.

Earlier this month, Sunridge provided an outlook for the new year, saying it anticipates passing several milestones on its way to beginning production at Asmara. The permitting process for the mine begun last month, with the company submitting its social and environmental impact assessment report for Asmara. This initiates the process to acquire the mining license, which is expected to take between nine and 12 months. 

Negotiations are also continuing with Sunridge and the Eritrean National Mining Corporation (ENAMCO) over the price the state-controlled organization will pay to the company to purchase 30% of the Asmara project. Sunridge said that management is "encouraged" with the progress made late in 2013, with expectations that negotiations will be completed early this year. 

Roulston, in his article, wrote that investors shouldn't be concerned about the location  of the project. 

"At a time when investors are particularly risk-averse, many investors are concerned about the location of the project, being in Eritrea in Africa. The reality is that Eritrea is a favorable place for mining: Nevsun (NSU-TSX) successfully developed and operates the Bisha mine in that country."

"Nevsun received debt funding for the project from international banking firms, and those same groups are willing to lend to the Sunridge project."

Indeed, in its statement on January 13, Sunridge said a project information memorandum was sent to a group of potential debt financing lenders late last year, which included commercial and development banks, export credit agencies, equipment suppliers, potential off-take partners and royalty and streaming groups. The company noted that several financing options are still being considered, with debt discussions to continue throughout the first quarter. Based on this timeline, indicative term sheets are anticipated by the second half of this year, according to Sunridge's statement.

Roulston added: "Another mining project is presently under development in the country, after it was acquired by a Chinese mining company. There are a number of international mining companies that would be very happy to be involved in a project as attractive as Asmara and see Eritrea as a favorable place to operate a mine."

The writer concluded that the company's shares are "greatly undervalued", based on normal metrics, as the current market cap of Sunridge is less than one tenth of the value implied by its share of the after-tax net present value, as determined in the feasibility study. 

As the milestones unfold this year, the expectations are high that Sunridge's share price will increase, especially with the negotiations with ENAMCO seemingly near completion. "Having a deal in place will enable the various mining and other investment groups looking at the project to finalize their analyses and to bring forward offers," Roulston wrote.

The Asmara project, which has a three phase start-up plan outlined beginning with high grade copper and gold, 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. 

To read the full Roulston article, please click here

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May 05 2016

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