Goldstone Resources announced its maiden JORC at Homase last week (click here to view) and Mining Maven gave Exploration Director Hendrik Schloemann the opportunity to expand on the news with a brief Q&A session for investors (click here to view).
The exploration update confirmed a JORC compliant resource totalling 282,608 ounces, though judging from the initial market response this may have been less than some had hoped for. Perhaps, as often happens with speculation in the run up to significant news, the market may have got ahead of itself, and that old adage, “buy on rumour, sell on fact” came in to play. The share price has since recovered which would suggest this was indeed merely a knee jerk reaction.
However, we were rather impressed by the JORC figures. Why were we impressed?
Once again it’s down to the relative value of those ounces, and the fact that a big slug of the resource - 81% - came up in the measured and indicated category – so those ounces in the ground have a significantly greater value than inferred ounces.
For some reason the market currently seems fixated on quantity rather than quality, and this valuation anomaly is certainly not unique to Goldstone Resources. So coming from a value perspective - as we do – what value would we attribute to Homase?
Edison’s recent Gold Report, which provides global average values for Inferred, Indicated and Measured resources and extrapolating their values for the three JORC categories, ($340 per measured ounce, $159 per indicated ounce and $34 per inferred ounce) it would provide the following figures:
Measured – 157,298 ounces @$340 = $53,481,320
Indicated – 72,531 ounces @$159 = $11,532,429
Inferred - 52,779 ounces @ $34 = $1,794,486
Total - $66,808,235
This is rather crude metric and is used merely to attribute some sort of value on the JORC ounces at Homase. It should also be noted that Goldstone Resources is currently still earning in to the project and subject to successful fulfilment of all the stages in the JV agreement (click here to view) they will eventually achieve an 85% interest.
That said, based on:
- the hugely significant JORC;
- the ability to increase the JORC resource;
- the prospectivity of the region;
- the fact that Homase was previously mined by Anglogold Ashanti and;
- that Goldstone has itself confirmed negotiations with a strategic partner are underway;
we look optimistically on the company’s ability to take this project forward expeditiously, raising working capital when needed.
Having mentioned a number of (non-JORC) factors above it is worth expanding a little here.
Resource Expansion:
The company have confirmed in their announcement last week and in Mining Maven’s follow up Q&A session, that the resource holds the potential for further expansion down at depth and along strike. The resource as identified appears to be only a proportion of what Homase could actually hold and that is always a specific point of interest for investors.
In a world where million plus ounce resources are becoming increasingly attractive to mid tier and major gold producers desperate for new gold finds, Goldstone have found themselves holding some very prospective ground and it comes as no surprise that third parties have expressed an interest (see below re Strategic Partners).
Region Prospectivity:
The Ghanaian projects, of which Homase is the most advanced, is some of the most highly prospective territory in the world. Homase is situated, for example, on the same structure that includes Anglogold’s Obuasi mine which has (including that produced to date) some 42 million ounces of gold. Also nearby are half a dozen million plus ounce projects which can be viewed by visiting the Homase page on the company website.
Historic Mining:
Anglogold Ashanti owned and operated a mine at Homase in 2002/2003, the ore generated was used to provide supplementary feed ore for their Obuasi operation at a reported operating cost per ounce of $220 – 280. This production was undertaken at a time when gold was priced at $320 – 380 per ounce.
Obviously in a time of extremely low gold prices, operation of the mine was marginal with regard to profitability but even factoring in increased operational costs we would expect Homase to be substantially more profitable in today’s $1100 plus ounce gold environment.
Strategic Partners:
In their 9th April STATEMENT RE. SHARE PRICE MOVEMENT (click here to view), the company confirmed “In addition, as announced on 22 February 2010 the Company is in discussions with an industry participant regarding a potential strategic alliance which could include an equity subscription into Goldstone”.
They have a number of prospective licences, one of which has now yielded a maiden JORC resource. Going forward, short-term exploration costs appear to be controlled and central overheads moderate, putting them in a strong position with regard to strategic partnership negotiations and any future fund raising as required.
One other thing....
It is important to remember that the above relates to just the one project in Ghana (Homase) and the company has another Ghanaian gold project (Manso Amenfi), a Senegalese gold project (Sangola) and applications pending for additional permits in Gabon. So what upside should we add for those elements?
In reality......
Now of course, it would be a bit optimistic to expect an AIM listed explorer to simply leap up to much higher valuations immediately, but the potential and value is now clearly defined. And, recognising all the above factors, from a value investor’s perspective, we feel that 5p a share or a £6.5 million market cap should offer considerable upside potential.
We will be following Goldstone Resources very closely over the coming months and expect to report on developments as the story develops. In the interim we trust the Q&A session with Dr Hendrik Schloemann and this brief assessment have proved useful. If you have any comments or feedback please email us at info@miningmaven.com
This summary represents the views and opinions of Miningmaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation. All opinions expressed are those of the author and unless otherwise stated, should not be construed as being made on behalf of any featured Company. From time to time Mining Maven principals may or may not take an equity position in the said companies. Readers are advised to do their own extensive research before buying shares which, as with all small cap exploration stocks, should be viewed as high risk. Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate. All rights reserved. Users may print extracts of content from this blog for their own personal and non-commercial use only. Republication or redistribution of Mining Maven content, is expressly prohibited without the prior written consent of Mining Maven. However, linking directly to the Mining Maven blog is permitted and encouraged.
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