Stellar day for Eritrean mining companies! This morning Sunridge announced the results of the Bankable Feasibility Study for their Asmara copper-zinc-gold project which I believe produced results which far exceeded anyone’s expectations. And then just as I was writing this note, Nevsun Resources, the first mining company to go into production in Eritrea, announced that they have increased the dividend to shareholders.

Sunridge’s Feasibility Study shows the project has a Net Present Value (NPV) of $837 million and a very impressive Internal Rate of Return (IRR) of 34%. Sunridge has truly demonstrated that this is indeed a world class project.

More importantly, the study presents a very strong mining plan which in light of the current market conditions, Sunridge has adapted the mining plan to include a staged start-up which will reduce initial capital costs and bring the project into production a year earlier than expected. The mining plan consists of a 3 Phase start-up which will mine and processes base and precious metal ore from the four advanced deposits on the Asmara Project (Emba Derho, Debarwa, adi Nefas, and Gupo Gold) at a central processing facility located at Emba Derho.

The staged start up plan has made it possible for Sunridge to reach production at Debarwa with the high grade DSO copper and gold zone, as well as gold production from the gold caps from Emba Derho and Debarwa for initial capital costs of only $46 million. Furthermore, the proceeds of the Phase I mining will help cover the capital cost to move to full production within 3 years. The plan reduces initial capital requirements to reach full production by $130 million.

Now that the Feasibility Study is complete, the next big announcement is expected to be the announcement that the government of Eritrea has agreed on a purchase price for their purchase of 30% of the project. It is important to note that in addition to the purchase price the government will also be responsible for 1/3rd of all the capital costs to develop and build the mine. Sunride will then be applying for a mining license with the government of Eritrea as its partner on the project.

Although Sunridge has a clear path towards production, chances are very good that a major mining company may make a move. Now that the feasibility Study is complete, we can anticipate to see a lot of action on this front, especially considering the amount of highly coveted copper and zinc concentrate that will be produced in the relatively near future.

I believe things are about to get very interesting for Sunridge, as they are now at the point where Nevsun was 4 years ago. Market conditions have been brutal for some time now, yet despite this Sunridge is driving this project towards production. Sunridge now has a market cap of around $30 million and they just demonstrated that they have an asset with an NPV of over $800 million. And let’s not forget that this does not include the large Adi Rassi copper-gold deposit or the Kodadu Gold Target!

Feasibility Study Highlights

• NPV of $837 million at a 10% discount (pre-tax)
• NPV of $443 million at a 10% discount (post-tax)
• Internal rate of return (IRR) – pre-tax 34%, post-tax 27%
• Payback – pre-tax 4.1 production years, post-tax 4.6 years
• Base Case metal prices used – $3.25/lb copper, $1.00/lb zinc, $1,400/oz gold, $25.00/oz silver
• Initial Phases 1A & 1B Direct Shipping Copper Ore & Heap-Leach Gold capital cost estimate – $46 million
• Initial Phase 2 & 3 flotation plant capital cost estimate – $357 million
• Peak Equity Funding – $354 million
• On site operating costs – $29.42 per tonne average through life of mine
• Average annual metal production over the first 8 years-
  • • 65 million pounds (29,000 tonnes) of copper
    • 184 million pounds (83,000 tonnes) of zinc
    • 42,000 ounces of gold
    • 1.0 million ounces of silver
• Total metal production –
  • • 841 million pounds (381,000 tonnes) of copper
    • 1,874 million pounds (850,000 tonnes) of zinc
    • 436,000 ounces of gold
    • 11 million ounces of silver
• Life of Mine – 15.3 years

Mining Plan Outline

• Phase I – DSO and Gold Production (starting in year 1) -

Phase 1A -Beginning in year 1, Phase 1 will include mining of 116,000 tonnes of high-grade DSO with an average grade of 15.6% copper, 2.96 g/t gold, and 76.8 g/t silver from Debarwa. Crushing and direct shipping the material to a smelter.

Phase 1B – Also beginning in year 1, 3.0 million tonnes near-surface gold “caps” at Debarwa, Emba Derho, and Gupo Gold will be mined and processed at a gold heap-leaching operation near the Emba Derho

• Phase II– Supergene Copper Production (starting in year 2) – Mine and process by flotation 2.4 million tonnes of high-grade copper supergene ore from Debarwa and Emba Derho at rate of 2 million tonnes per year for 1.25 years

• Phase III Full Production (starting in year 3) – Mine and process by flotation 51.0 million tonnes of primary copper and zinc ore from Emba Derho, Debarwa, and Adi Nefas at a rate of 4 million tonnes per year for 13years

Bottomline - I can truly only imagine where the share price would be if we weren’t in the worse junior resource bear market in my 30 years in and around the industry. Facing my maker, I would say without hesitation this is without a doubt from the bottom of my heart a share price that in no way comes remotely close to representing the value SGC now is. My biggest fear is not things getting even worse but that someone comes a long and picks them off before any real value is placed on the share price. Never-the-less, management did a great job as they succeeded only where they could – in actual corporate development (and what the market prices them at is really out of their control no matter how hard they tried to make that not the case).

There is a conference call this morning

Posted in Base Metals Canadian Stocks Copper Exploration Shares Gold Mining Shares Precious Metals Sunridge Gold by Pe